Bankers See Businesses Maintaining the Status Quo
YOUNGSTOWN, Ohio –- Owners of small businesses in the Mahoning Valley are doing well but have a sense of unease, say four community bankers who work closely with them.
Yes, owners are taking out loans or signing leases to finance new equipment. And some manufacturers have the confidence to expand their plants or build new ones.
Small-businessmen and women are current in repaying debt, in full and on time, the bankers report, but very few are incurring additional debt by drawing down further on their lines of credit or taking out new term loans. And few are adding to their workforces. Hiring more employees is at a near standstill for five reasons, the bankers say:
First, small-business owners, cautious by nature, become even more cautious in a presidential election year, bankers agree.
Second, most owners still carry the psychological scars from the Great Recession.
Third, the equipment they’re replacing has resulted in greater efficiencies, alleviating the need to hire.
Fourth, small-business owners still say it’s hard to find the employees they need. Otherwise qualified candidates’ inability to pass a drug test is only one aspect of the challenge.
And fifth, the premiums for health care insurance continue to rise and owners must fill out more paperwork to show they’re in compliance.
Still, local bankers are seeing plenty of activity.
“We’re busy,” reports Tim Shaffer, senior vice president at Farmers National Bank, Canfield, and president of its East division. “We’re hitting our production levels,” but loan demand, which grew at a healthy clip in 2013 and 2014, leveled out last year. One bright spot he sees is the transportation industry where trucking companies are “expanding their business lines and adding to their fleets.”
For the most part, companies were hiring in 2014 and last year but, “That’s not the case today,” Shaffer says.
From the First National Bank of Pennsylvania offices in downtown Youngstown, Pete Asimakopoulos, executive vice president for small-business lending across its footprint in five states, reports, “We’re still seeing people be cautious. But there are a lot of strong companies out there. They’re expanding and hiring. They’re buying equipment and real estate. We’re starting to see more renovations and new buildings, the most since 2009,” the end of the Great Recession.
Loan demand “is always a challenge in an election year,” says Dan Segoll, business development officer at Talmer Bank and Trust in Canfield. While small-business owners are maintaining their levels of debt, they’re won’t be psychologically ready to take on more until after Election Day.
Only now, seven years after the official end of the last recession, “Some are looking for larger lines [of credit],” Segoll says. “Others are [still] looking to pay down.”
Those who survived the Great Recession still have vivid memories of those 18 months.
“They downsized and have gotten used to [the adjustments they made],” Segoll says. They’re reluctant to return to their pre-2008 levels because they believe they have better control of their businesses.
In this “new normal” – Segoll’s description – small manufacturers are more interested in buying “more sophisticated equipment, not hiring more employees.” Those they hire possess the skills to operate the new equipment.
Talmer is heavily engaged in commercial real estate and “commercial real estate [lending] has been good,” he continues, “but it could be better.” Hampering demand are rising prices that owners deem too high for the few warehouses and limited number of office buildings for sale.
There’s no shortage of office space or warehouses, Segoll relates. It’s that the property owners would rather remain landlords than sell their properties. This has led small-business owners to “update their facilities, perhaps expand them” rather than relocate to larger plants they deem overpriced.
After enjoying vigorous commercial loan growth – more than 9% annually the last two years and another 9% in the first quarter – Cortland Banks chief lending officer, Senior Vice President Stan Feret, foresees that growth continuing.
Commercial and industrial lending grew 22% last year, Feret says, while commercial real estate grew 4%. But, he points out, his bank has long had a large commercial real estate portfolio.
“We’ve seen a lot of [real estate] activity in the last two to three years,” he says. “We expect 6% to 8% growth by year-end.”
Contractors who build houses have begun to see their business rebound, Feret says, so they’re seeking financing. In addition, “We’re seeing more agricultural requests” because more farmers are selling their properties.
The time between applying for a commercial loan and approval might be a day or two longer than before the Great Recession.
“We have handled the [ensuing] regulatory burden well,” Farmers’ Shaffer says. “We have a chief risk officer now [responsible] for the nine elements of risk identification we have to look for now. … That has added time over the last year, but it hasn’t prohibited us from doing what we always have.”
Farmers has added “an express loan product” to businesses that need up to $250,000 structured to be approved “in just days,” Shaffer says.
First National Bank has a similar product it calls “a fast-track loan,” Asimakopoulos says. “We can close in 48 hours on equipment [that costs] $100,000 and below.”
At the beginning of this month, Talmer began offering commercial mortgages of between $100,000 and $1 million at a fixed rate of 3.95%, Segoll says. The small-business owner must own the enterprise or occupy the building to qualify. The financing is “due in five years with up to 20 years amortization,” Talmer says, and the bank will pay closing costs of $1,000 on loans of less than $250,000 and up to $2,000 on loans of $250,000 to $1 million.
The bankers are aware of crowdfunding, the practice of a company financing its operations by borrowing or raising money from a large number of people, usually via the internet. Shaffer, Asimakopoulos, Segoll and Feret, however, sense that such alternative financing in its infancy here.
Crowdfunders tend to approve the loans they make more quickly than banks – usually for requests of less than $100,000 – but they also charge higher rates and often impose more or higher fees.
“Banks overall are the major providers of credit to small businesses,” Cortland’s Feret says. “Fintech lending – those credits under $100,000 – or micro-business lending is like credit card lending,” he explains. “We are just now exploring those products.”
The more established small-business owners turn to their commercial lending officers for counsel. “You have a relationship with the borrower that’s based on more than just money,” Feret says. “Seventy percent still turn to the bank for advice.”
“Crowdfunding? I don’t run into it that often,” Segoll says. “Speed [quick approval] is an attraction.” What the borrower sacrifices, as the Talmer banker sees it, is the bank’s role in assessing the company’s needs and working with the owner’s accountant and lawyer to achieve the optimal package and terms. “I try when I can to put people together,” he says. “I talk to realtors, attorneys, CPAs.”
Asimakopoulos finds “a lot more awareness [among small-business owners] of online lenders over the last 12 months.”
First National Bank competes against these alternative lenders “by adding more value. Typically, they have a higher rate,” he says, and crowdfunders can’t provide the support that banks offer, especially treasury management and wealth management services.
“We’re not ignoring it,” Farmers’ Shaffer says. Like First National Bank, Farmers is “investing a lot in our mobile banking and internet banking” so small-businessmen can stay up to the minute with their receivables and payables, whether from their offices or iPhones or tablets.
“On the treasury management side,” Asimakopoulos says, “our desktop banking has been very well received. We’re on our second and third generation on a lot of our electronic banking. … Shortly we’ll introduce mobile banking for our commercial customers.”
The segment of their customers that makes greatest use of their branch networks is small-business owners, the bankers say. They’re the segment most likely to visit an office to talk to their bankers.
“The future of the [bricks-and-mortar] branch centers around the small-business owner,” Asimakopoulos says. “They still come to the branch fairly regularly. It might be to get cash. But they like to meet with the branch manager” who works closely with the commercial lending officers.
“They come to the bank first,” Shaffer says, “to find out what’s necessary” to secure financing or renew a loan.
“The small-business market is visiting branches more often,” Cortland’s Feret says. “They still use their PCs and mobile device. But they need extra care,” that is, the attention and information they rely on a lender or branch manager to have on hand.
Copyright 2023 The Business Journal, Youngstown, Ohio.