YOUNGSTOWN, Ohio -- As the recovery strengthens, small businesses have not only gotten back in the water, they’re swimming with vigor.
The demand for loans is up, commercial lenders report, as their customers need money to buy new or replace old equipment, expand their operations or acquire commercial real estate.
Their cash flow is much improved and the businesses have healthier balance sheets, lenders say, thereby reducing the risk they assume.
At least two banks, Cortland Banks and Farmers National Bank of Canfield, have added staff to their commercial lending departments and Home Savings and Loan Co. is looking to add to its roster of nine commercial lenders.
“All my customers are doing well,” says Dennis Linville, senior vice president at Middlefield Banking Co. and its Cortland area executive. “They’re buying vehicles, expanding their facilities or buying new facilities.”
“Business is going well,” says Gregory C. Krontiris, senior vice president and chief lending officer at Home Savings and Loan Co., Youngstown. “There’s a pickup in C&I [commercial and industrial portfolio] and a general lift across the board.”
“Business is good and we’ve been growing,” says Timothy F. Shaffer, vice president for commercial lending at Farmers. “We have a steady flow of new customers.”
Adds Theodore Schmidt, regional president of PNC Bank in Youngstown, “Business [loan demand] has been strong. We had a good year in 2011 and the outlook is good in 2012. Manufacturing has rebounded and trucking is getting stronger.”
At Cortland Banks, its chief lending officer, Stan Feret, has seen the greatest growth in C&I lending. Best of all, he says, the demand for loans is to “finance acquisitions and equipment, not to refinance existing debt at lower [interest] rates.”
Cortland, Feret reports, is “rebalancing” its loan portfolio “to get more C&I lending. Historically, the bank once had 93% of its [commercial] loans in commercial real estate.”
Few companies are seeking to increase their lines of credit, most lenders say. “Companies have become much more efficient,” Home Savings’ Krontiris says.
PNC’s Schmidt finds, “In the last 12 to 18 months, the utilization rates of lines of credit has dropped.” What “is picking back up,” he says, is the number of term loans sought to finance equipment. “There’s some pent-up demand,” he relates.
Reflecting the falling demand for use of lines of credit is the increase in business owners’ deposits at the banks where they do business.
Home Savings recently amended its policy on the relationships it has with business owners. “It’s now a requirement,” Krontiris says, ”that if you’re going to be our customer, you have funds on deposit here.”
PNC is seeing “a little leasing” as it provides financing for equipment,” Schmidt says. “But most [business owners] are opting for term loans of three to five years. They want a floating rate if they intend to pay it off in three years or less, fixed if it’s five or more. Those rates are still attractive.”
Farmers likewise sees little demand for new lines of credit or drawing down existing lines, Shaffer says. “It’s mostly term loans,” he says, and “75% is for fixed equipment, 25% to improve real estate.”
Cortland seems to be the exception. “We’ve had a good mix of both, term and line of credit,” Feret says, with several new loans approved for real estate and equipment.
Cortland lenders have enjoyed success by reaching out to trucking companies and skilled manufacturers, he says.
Besides manufacturers, banks have lent to providers of services and retail stores, although most demand seems to come from health-care providers. “We haven’t seen much outside of health care,” Farmers’ Shaffer says.
“Health care is a good sector for us,” says PNC’s Schmidt. “We have a specialist who serves physicians and dentists groups.”
The majority of Middlefield Banking Co.’s commercial lending is to service providers, Linville says, only 10% to manufacturers. “Service providers are doing much better than they were two years ago,” the banker says, which has prompted them to seek financing “for capital acquisitions, property improvement and enhancement with an eye to hire.”
The low-interest-rate environment encourages business owners to borrow, Linville says, both because of lower payments and because the recovery has made them more confident that they can repay. “We’re more comfortable with the borrower, too,” he says.
Middlefield Banking has sounded out the southern tier of Trumbull County and Mahoning County. “It was an experiment for Middlefield to come down this far,” Linville says, “and things have worked out pretty well. We like what we see. Once we introduce ourselves, people want to learn more and then they’re interested in doing business with us.”
Says the Middlefield senior vice president, “Most of my activity is commercial real estate.” He’s also worked with two auto dealerships in Trumbull County and finds “that self-storage facilities are making a resurgence” and the owners need money to expand. Also in need of funding “is the hospitality industry – hotels,” Linville says. “Business is getting better. I’m sure the oil and gas industry are behind this.”
With the economy rebounding, this might seem a time when would-be entrepreneurs are approaching banks for funds to start their own businesses. Such is not the case, the lenders report. Unlike before the Great Recession when they were approached more often, the number of such inquiries has not risen since the recovery began.
Regardless, the lenders are likely to refer them to the U.S. Small Business Administration or the Mahoning Valley Economic Development Corp. And all praise the SBA and MVEDC for their role in making its easier for new and established businesses to secure the financing they need.
Regardless, the bankers are always looking for that break-through company. In 2011, Home Savings’ Krontiris says he “looked at $40 million in small-business loan requests [from owners of companies seeking] $500,000 or under. There were 250 loans requests that I personally read and reviewed.”
It’s a rare small business that doesn’t avail itself of its bank’s treasury management or cash management services, the lenders agree. The service allows the business owner to better track his revenues and expenses and manage his credit needs with far less effort and expense.
PNC’s Schmidt points to his bank’s Business Options Visa card as a great tool to improve cash flow. Using the card to make purchases allows business owners to extend their payments by 30 days, he notes.
All banks offer some form of mobile banking and remote capture, that is, the business owner or treasurer can deposit a check by taking a picture on his cellular phone, then transmit it to his checking account and have it credited the same day.
With less need to visit the bank to make deposits, owners nonetheless remain as loyal to their banks as before computers and wireless communications transformed the financial services industry, the bankers say.
Lending officers, also called relationship managers, visit business owners in the plants, shops and stores as often as they always have to ascertain needs and update the owners about new software or credit vehicles.
Of the five C’s of credit, character is given the greatest emphasis today, the lenders agree – not that they are disregarding collateral, capacity, conditions or cash flow
“Farmers does not credit score,” Shaffer says. (So do the other small banks.) “Character in many ways is the most important indicator [of ability to repay]. Cash flow is a close second.”
All still want the borrower to have equity in his business. “Do they have skin in the game?” he asks, echoing the other lenders.
The bankers agree that they still review loan requests as they always have. “Our model has not changed over the years,” PNC’s Schmidt says. “We look at each request on a stand-alone basis. And based on our understanding of an industry and [the applicant’s] management team, we make our decision.”
What has changed are bankers’ hours. Before computers, bankers’ hours were 10 a.m. to 3 p.m. weekdays except Wednesday when they were 9 a.m. to noon.
Today lending officers find they’re on call 24/7, they say, and their customers don’t hesitate to reach them on their cell phones before 8 a.m. and after 5 p.m. (The business cards of the bankers interviewed listed their cell phone numbers as well as their email addresses.)
Most take calls after 7 p.m. once or twice a week, they say, usually after they’ve arrived home. “With a cell phone, there’s an expectation that we’re available,” Farmers’ Shaffer says, adding that he’s happy to be of help.
“In the relationship you have with a client,” Home Savings’ Krontiris says, “you’re there to help them. If they need to talk to somebody, you’re available.”
Says Cortland’s Feret, “Last night I got a text message at 7:30. I forwarded it right away and got him the information he needed. The successful lenders reach out.”
EDITOR'S NOTE: This story was first published in the Feb. 14th edition of The Business Journal. To subscribe, CLICK HERE.
Copyright 2012 The Business Journal, Youngstown, Ohio.