Finding Funds: Amid inflationary environment, credit and capital is readily available, according to local officials

The wait to see when – or if – the Federal Reserve will cut interest rates this year isn’t impacting access to credit or the ability to raise capital, according to local banking officials.

The Fed said at its most recent meeting in early May that it doesn’t plan to cut interest rates until it has “greater confidence” that price increases are slowing sustainably to its 2% target. However, inflation showed a sign of easing in April, ticking down to 3.4% from 3.5% year-over-year, according to the U.S. Bureau of Labor Statistics. That was following elevated inflationary data for the first three months of the year.

Both Rob Fulp, regional managing director at Great Southern Bank – operated by Great Southern Bancorp Inc. (Nasdaq: GSBC) – and Derek Fraley, president and CEO of Systematic Savings Bank (OTC: SSSB), say the lending environment in the Springfield area and at their respective banks has been consistently strong over the past year.

“Things are definitely going well. A measuring stick for us is our commercial loan pipeline, and it continues to grow every quarter,” Fulp said, declining to disclose data. “The next six months will continue to be good, and there is capital and credit available for projects.”

Great Southern Bank maintained its local No. 1 rank on the Federal Deposit Insurance Corp.’s annual deposit market share report released in September 2023. With deposits of over $2.1 billion in the Springfield metropolitan statistical area, the bank controlled 13.6% of the local deposit market as of June 30, 2023.

Fraley agreed credit and capital are readily available. He noted the banking industry remains well poised to serve business or consumer needs.

“We have many customers who continually have opportunities to invest in their businesses,” Fraley said via email. “Also, many of our borrowers are sophisticated enough to know that the current rate environment is not high. It’s about average. So current rates, to them, do not feel punitive.”

However, Fulp said the current interest rate still is a challenge to fully understand the Fed’s decision on rates going forward.

“The interest rate environment is very sensitive with prime [rate] at 8.5%. The five-year treasury [rate] today is 4.3%,” he said. “The interest rate environment really dictates the speed of projects coming together because you definitely want to have it strong. That’s something that’s very important for both sides at the table.”

There’s increasing confidence in the ability to access credit, according to respondents of Springfield Business Journal’s 2024 Economic Growth Survey. Roughly 50% of respondents believe credit is as easy to access as it was a year prior, while only 23% said it was harder to access. That’s down from 33% in 2023 who felt credit was more difficult to access.

About 1 in 4 respondents in this year’s survey said they planned on raising capital in the near future – on par with the total in 2023.

When it comes to raising capital, this year’s survey respondents said strategic partners – who could include individuals and businesses – as well as banks ranked as the two most popular sources for accessing capital. Strategic partners garnered 38% of responses, followed closely by banks at 35%.

Partner up
Strategic partners and a bank were both instrumental in financing the May 2023 purchase of a three-story office building in Chesterfield Village. Kinetic Design and Development LLC and Sanders, Myers & Blackwell CPAs LLP partnered in a real estate holding company, Tenedor Pesado LLC, to purchase the roughly 25,000-square-foot building. The company, whose name means “heavy fork” in Spanish, owns the 2215 W. Chesterfield Blvd. property known for its signature giant fork.

While financial terms of the deal were undisclosed, SMB Managing Partner Jacob Sanders said the building was purchased with financing through both the U.S. Small Business Administration and MOBUCKS, a low-interest loan program through the state treasurer’s office. OakStar Bank helped with the transaction, he said, adding some of the cash needs were handled differently by those involved in the purchase, including dipping into reserves and personal loans. SMB also spent roughly $200,000 for infill work.

“They approached us about it, and we figured that we could probably make that work partnering with them,” Sanders said of Kinetic, adding the architecture firm is among SMB clients. “The location and the space was great, but for either one of us, by ourselves, it wasn’t going to work.”

Sanders said SMB previously took up roughly 60% of the 5,500 square feet shared with James Financial Partners at 909 E. Republic Road, Ste. F-200. Now, it occupies the entire third floor of the Chesterfield Boulevard property, roughly 8,150 square feet. Kinetic occupies the first floor, while building seller, Springfield digital commerce firm Classy Llama Studios LLC, leases the second floor.

“We had looked at different properties, nothing too serious, just kind of passively looking as we saw them available,” Sanders said prior to Kinetic proposing the building purchase partnership.

Look ahead
Jeff Childs, senior adviser with SVN/Rankin Co., said commercial real estate prices are more expensive now than they were even two years ago and can deliver sticker shock to anyone starting to shop the marketplace. Childs spoke on the topic during a panel discussion at SBJ’s Economic Growth Series kickoff event held June 4 at the Efactory.

“I deal with companies that if they’re trying to lease small office places or large, wherever they may be, I know all the other guys in the office are coming across the same issues,” Childs said, noting tenants don’t understand that the price per square foot may now be $20 when it previously was $12. “It’s just a function of where we are in the market.

“You really should be planning at least a year or two years in advance of making a move because you need to have the funding in place to accommodate those changes you’re going to see as a tenant,” he said.

Fulp said he’s continuing to watch the labor market, which he noted is still strong locally.

The Springfield MSA posted a jobless rate of 2.9% in April, down from 3.3% the previous month, according to the most recent BLS data. Missouri’s unemployment rate dropped to 3.2% in April from 3.7% in March.

“On a national stage, along with inflation and interest rates, the unemployment rate is really important to keep an eye on,” he said.