Economic conditions hamper access to capital

President Obama pledged help for small businesses in his Jan. 27 State of the Union address, and there’s $30 billion in funding at the top of the heap.

“Jobs will be our No. 1 focus in 2010, and we’re going to start where most new jobs do, with small businesses,” Obama said in a Feb. 2 news release outlining the proposed Small Business Lending Fund.

Treasury Secretary Tim Geithner said in the release that the proposed fund would take money repaid through the Troubled Asset Relief Program by the nation’s largest banks and provide it to community banks to spur lending.

“As I have met small-business owners from across the country, they all stress the same thing – to expand and hire, they need better access to credit,” Geithner said.

Local bankers say that although there may be some businesses struggling to access capital, it is the market – and not lending practices – that have changed across the board.

“Each bank sets their own policies as to what qualifies as a loan that they’ll approve,” said Bank of Bolivar Senior Vice President Bill Owen.

While some banks have tightened their standards, either of their own volition or after regulatory encouragement to do so, he said the shift hasn’t been industrywide.

For Bank of Bolivar, Owen said the key component is cash flow.

“Collateral’s nice, and we like to see it, but right now, unless a business is cash-flowing, it’s very difficult to access loans,” he added.

Thomas Fowler, president of State Bank of Southwest Missouri, agreed, noting that earnings, collateral and borrower character continue to be key indicators of loan decisions.

“With the economy not in good shape, many businesses are not quite as good a borrower as they are in good times,” Fowler said. “Their sales are not as good, their profits are not as good, so the loan is not as good, and that’s been a real problem.”

Both banks’ commercial loan volumes speak to the slowdown in lending.

Bank of Bolivar posted $22.6 million in commercial and industrial loans in 2009, Owen said, down from $24.9 million in 2008. Fowler did not have year-end figures available, but Federal Deposit Insurance Corp. filings through third-quarter 2009 showed State Bank’s commercial and industrial loans dropped by about half a million dollars to nearly $1.5 million compared to the first nine months of 2008.

While there may be companies struggling to find loans, there are some local business owners who are able to tap into the funds they need, including Jeffrey Messenger, owner of Springfield-based Ozark Prosthetics & Orthotics.

Messenger closed on a $2.4 million loan through Bank of Bolivar about a month ago. The funds, which were borrowed with a guarantee from the U.S. Small Business Administration, were used to buy land and build a 11,720-square-foot facility at 3250 S. Delaware Ave.

Ozark Prosthetics office staff will move this month from 3045 S. National, Ste. 102. A fabrication lab that was several blocks from that office already has relocated to the new building, Messenger said.  

Messenger said he started the process of finding a loan about a year ago, working solely with Bank of Bolivar to secure the money.

He said the experience taught him that – at least for some businesses – there is still money available.

“The only thing that may be keeping them from borrowing is the status of their company or what they’re wanting to do,” he said.  

Steve Crowder, president and CEO of Springfield-based home furnishings wholesaler Guildmaster, told Springfield Business Journal in February 2009 that his efforts to secure a line of credit were rejected by area banks or came with much higher interest rates than he’d seen in the past.

Since at least December 2008, Crowder has spoken to several area banks, and his company was able to close in late 2009 on a $2.5 million line of credit from a Springfield-based community bank that Crowder declined to name.

He said that although his company was able to access needed capital, he doesn’t think it signals a massive unlocking of capital in the marketplace.

“We recapitalized our company and some of our internal shareholders converted some debt to equity, and I think that had more to do with why we were able to get capital than somebody saying, ‘Oh, yeah, let’s help out small businesses,’” he said.

While megabanks may be facing regulatory requirements for more stringent lending practices, Crowder said what’s hurting smaller banks’ abilities to lend to businesses is the hit they’re taking on commercial real estate loans, noting that he understands both the need for regulation and banks’ hesitance to help some borrowers.

“I don’t think bankers should be out there making stupid loans,” Crowder said.

Bank of Bolivar’s Owen said it’s just common sense for bankers to be sensitive to the reality of economic conditions.

“We all recognize it, because everybody’s talking about it,” he said. “You’re naturally going to be a little more careful.”

In the meantime, Crowder’s concern is that businesses in need of capital won’t get it in time, which could hurt economic recovery.

“I think there’s a lot of small businesses out there that need access to capital,” Crowder said. “If they don’t get it soon, they’re going to struggle or die. I think that’s bad for America, and I think that’s bad for the community. Everything drives on creating jobs, and small businesses create jobs.”