Firms are cautious, but active
Lenders noting an increase in small-business loan pool
Banks say they are competing to lend money to businesses that weathered the economic slump
and can now leverage near record-low interest rates to finance new equipment, buy facilities and hire more workers. And while lenders say many firms still shy from taking on more risk — pending some resolution to the tax, budget and political turmoil in Washington — they see pent-up demand by businesses to seize opportunities to grow.
Wells Fargo's New Jersey commercial lending is up in the first six month of 2012, according to Alan Wyosnick, business banking manager for New Jersey, with most of that growth coming from new customers, and the remainder from current clients.
"Many businesses had held back so long on buying equipment, or buildings, or inventory, that when they got some positive signs, they said, 'OK, it looks like we've bottomed out and we're coming up — so now its time to go out and invest in my business,'" Wyosnick said. "I think the owners are still cautious about the economy, but at the same time, they are seeing their businesses growing, and they are responding to that by borrowing."
Experts said bankers want to lend to profitable companies with ample cash flow, unlike the days leading up to the 2008 financial crisis, when unprofitable companies might land financing based on the value of collateral that was expected to keep rising in value.
Robert Hopper, a CPA and head of the Manufacturing and Distribution Industry Service Group at Sax, Macy, Fromm & Co., said he recently helped a $30 million company refinance a $7 million loan. At first, the company's bank wouldn't consider a refinance, but the business owner "talked to three or four other banks, got competitive rates and then, at the last minute, the current bank came in and matched the offer." This company opted to stay put after its current bank agreed to cut the rate from 4.25 percent to 3 percent. Hopper said he advises clients to work out a better deal with their bank, rather than move money around; "when you need money for expansion, having a strong relationship with a banker makes that a lot easier."
It is indeed a competitive market for loans to good companies, Wyosnick said. He said Well Fargo tries to avoid competing strictly on price by also offering services like payroll, cash management, and 401(k) plans that help businesses "become more efficient and handle their growth — in some cases without adding employees — so we can show them a bigger improvement on their bottom line."
While bankers say new commercial loan demand is weak, the standout exception is the multifamily sector, which "is very, very robust," said Kevin Cummings, CEO of Investors Bank, in the Short Hills section of Millburn. Investors, which opened a loan production office in New York in 2010, has grown its multifamily housing portfolio from about $45 million five years ago to about $2 billion today, Cummings said.
Business lending by credit unions is restricted by federal law that caps their commercial loans at 12.25 percent of assets. While credit unions have lobbied for years to raise or eliminate the cap, they face vigorous opposition from commercial banks, which argue that increased powers for credit unions would be unfair, since credit unions are member-owned institutions and generally exempt from state and federal corporate taxes.
Marc Sovelove, senior vice president of the credit union Financial Resources, said he may hit the cap in the next year or 18 months. He said credit unions typically make smaller loans than banks. "While we are competing with them to some degree, we are not competing with them directly on every single deal."
Alan Feigenbaum, president of the credit union Advanced Financial, said he's at the cap, "so we really can't market our business loans." If not for the cap, "we could certainly add at least another $2 million in commercial loans, maybe more, and fairly quickly."
But commercial bankers have long fought bills in Congress to raise the cap, arguing that credit unions have tax advantages and pose serious competition to community banks in small-business lending. John E. McWeeney Jr., president of the New Jersey Bankers Association, said, "If you continue to allow credit unions to take on more and more of the powers of banks, and they continue to be subsidized by the taxpayers, it will put the nation's community banks at a severe disadvantage."
Paul Gentile, president of the New Jersey Credit Union League, said in New Jersey, the average size of a credit union business loan is $171,000, and "a lot of banks don't want to touch loans that small. … It's important to have credit unions making those smaller business loans and filling that niche."
Bob Birkhahn, senior vice president of commercial lending at Affinity Federal, the state's largest credit union, said "we have a very healthy pipeline" — with $30 million of loan applications under review, and prospects for another $10 million to $20 million. Affinity's sweet spot is the $2 million to $3 million range, but "we're happy to lend $100,000 to $250,000. Businesses need capital, and while some are slow to expand, they need funds to run their day-to-day." He said there are opportunities to attract new customers looking to refinance debt, but not "an abundance of fresh capital walking in the door."
Preston D. Pinkett III, chief executive of Newark's City National Bank, gets requests for refinancing, and for new capital to start or grow a business, but not as many as in the past, due to the sluggish economy. He said in the urban marketplace, one little-noticed trend has been "the surprising resilience of the nonprofit sector." He noted a long-term trend by government to shift more activities to the nonprofit sector, "and those nonprofits have in large measure contributed a great deal, and are doing it (on) a shoestring, so there is a great deal of resilience there."
Vito R. Nardelli, president of Ocean First Bank, said his commercial loans are growing slowly.
"The good news is that when (the economy) finally breaks out, they will have a good head start on whatever borrowing they want to do," he said. "With a lot of patience and some time, this economy will come around — and it may come around quicker than we think."
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