Lenders favoring small businesses

The economy has created a roller coaster of a ride the past few years, and its effects are particularly clear when it comes to commercial lending.

U.S. commercial lending was on a steep rise in terms of dollars borrowed every year for decades until 2008, when it dropped sharply. Now, however, lending seems to be slowly picking up.

According to the Federal Reserve Economic Data database, commercial loans nationwide reached a peak of $7.25 billion in December 2008 and by February of this year had dropped to $6.54 billion.

On Oct. 1, the most recent data available, total loans and leases at U.S. commercial banks edged up to $6.79 billion, which was 1.6 percent higher than in October 2009.

A bright spot, at least for some local lenders, seems to be teaming up with the U.S. Small Business Administration, which guarantees loans for small companies. Historically, the guarantees have been between 75 percent and 85 percent of the loans, but funds from the American Recovery and Reinvestment Act have increased the guaranteed portion to 90 percent.

“If there is a trend I’ve seen, it’s been in SBA loans,” said Keran Lemons, Springfield region loan manager for Arvest Bank. “Under the current economic conditions, those kinds of loans can make sense for bankers in the short run. There has been a bigger push for those lately.”

Arkansas-based Arvest Bank grew its commercial loans by 15.38 percent in third-quarter of 2010 compared to the same quarter in 2009, according to Federal Deposit Insurance Corp. data. Arvest posted more than $1.02 billion in commercial loans in third-quarter 2009, compared to $886 million for third-quarter 2009.

Locally, Arvest is the No. 4 SBA lender, with 22 loans totaling nearly $4.5 million in fiscal 2010.

In October, SBA’s Springfield branch office announced that it guaranteed $123.5 million for 477 loans in fiscal 2010, which ended Sept. 30. The dollar amount is a record for the local branch office, and the number of loans is its fourth-highest to date. Springfield-based Liberty Bank was the No. 1 SBA lender in Missouri, and among the Top 40 nationwide, drafting 190 SBA loans totaling more than $50 million for fiscal 2010.

Chris Blaine is among the borrowers fueling SBA’s loan volume in the Ozarks. After working in corporate America for 15 years, Blaine moved Oct. 1 to Springfield from Omaha, Neb., armed with a $125,000 SBA-backed loan from Liberty Bank to purchase Home Instead Senior Care, 1675 E. Seminole St., from Neil Marshall.

The Omaha-based company provides in-home nonmedical care for senior citizens and has more than 900 locations in 15 countries.

“It’s been a great experience for me,” Blaine said, noting that he was able to fill out most of the loan paperwork remotely. “I was worried about how I would be able to secure financing, but the process was very smooth.”

Steve Johnson, owner of Plato’s Closet, used an SBA-backed loan through Bank of Bolivar to build a new store at 1258 E. Battlefield Road, where he moved in mid-October.

Johnson said the new store – with an estimated construction cost of $680,000 – features space for a sister business, Clothes Mentor and is more accessible than his former store at 3420 S. Glenstone Ave.

“This location is much more shoppable,” he said, estimating that customer traffic has increased by at least 50 percent.

Still, it’s not necessarily easy for business owners to access commercial loans. Ross Murray, vice president at commercial real estate firm R.B. Murray Co., said the recession left many U.S. banks shell-shocked, which made local lenders particularly leery of taking unnecessary risks.

“The development side of lending has really slowed down as a result of what has happened with the economy during the last three years,” Murray said. “There is financing out there, but it is obviously harder to obtain.”

Murray said some service-related businesses, such as restaurants, may be at a disadvantage for securing financing, as lenders shift to businesses that fare better in a down economy.

“People may not have $50 or $60 to eat out, but they can take that money to the grocery story and their dollars will go a lot further,” he said. “That’s why grocery stores have been doing so well.”

Murray may be on to something. On Nov. 3, Pyramid Foods, the parent company of Price Cutter, opened its 48th store, a 53,000-square-foot Price Cutter Plus, at 335 N. Nolting Ave. in Chestnut Crossing, on the heels of its Bistro Market, which opened downtown Aug. 20.

And earlier this year, Iowa-based Hy-Vee Inc. announced its plans to build an 84,000-square-foot store at the southeast corner of Kansas Expressway and Battlefield Road. The store could open by late 2011.

UMB Bank, however, continues casting a wide net when it comes to commercial loans.

“We look at businesses in manufacturing, distribution, wholesalers, people in the service industry,” said Michael Garner, vice president and commercial lending officer with UMB in Springfield. “We haven’t changed our focus just because of the economic climate.”

UMB posted $1.66 billion in commercial loans for third-quarter 2010, up from $1.64 billion for the same quarter in 2009. More important than a company’s business sector, he said, is its overall operations.

“It all goes back to the business, to the operator and what they’re doing,” Garner said.

Roger Terrill, executive vice president at State Bank of Southwest Missouri, said home-grown companies are the lifeblood of his bank’s commercial lending, which dipped slightly between the third quarters of 2009 and 2010. State Bank reported commercial loans of nearly $1.4 million in the third quarter of this year, compared to a volume of $1.48 million for the same quarter a year ago.

“We really focus on the mom-and-pop shops that have a vested interest in their community – businesses that have an impact on our local economy,” Terrill said.

He said that the last couple of years has been a difficult climate for lending and that banks, in general, have not been as eager to lend.

Terrill said it’s important to keep economic context in mind when considering a potential commercial borrower.

“We have to approach businesses with the understanding that the current climate is not the same,” he said. “In terms of performance, we’re not comparing apples to apples or oranges to oranges. In other words, if a company has the same income today that it had a few years ago, that’s more impressive than it would have been then.”[[In-content Ad]]