Bank lending to small business was soft for several years after the 2008 market crash. Borrowers with good credit were nervous about taking on more debt, while the credit worthiness of many other small enterprises – and their ability to borrow – took a hit in those years. Banks, for their part, were a bit more cautious about going after the lending business in the small business sector.
Happily, in New Jersey, things have begun to change in this realm. Small businesses are more confident, more willing and able to borrow. Banks are again aggressively seeking this trade and creating programs that make it more attractive.
John E. McWeeney, Jr., president and CEO of the New Jersey Bankers Association, which has 110 member banks, 103 of them headquartered in the state, explained the reasons for this turnaround. On the banking side, he says, “there’s absolutely been a strong growth in the appetite to lend to small business. Because there has been very strong bank deposits in the last four or five years, banks have a lot of capital. They have a lot of liquidity.”
It wasn’t even unwillingness by banks to lend that was the main reason lending to small business was soft, he continues. “Lending is most banks’ prime source of revenue. … It was mostly the lack of demand rather than willingness of banks to lend that kept lending down.”
Slow And Steady
That this lack of demand by the small business side is changing, albeit slowly, is evidenced in the most recent Wells Fargo/Gallup Small Business Index. The survey asked small business owners about present and future perceptions of their financial situations.
Conducted March 31 to April 4 of this year, the survey found small business owners reporting their highest level of optimism in six years and feeling generally positive about the year ahead. They were more upbeat about their ability to obtain credit and expected to increase their capital spending as well. The survey also made clear, however, that improvements here were still modest.
Though a national survey, its findings match up nicely with what’s being observed by many New Jersey bankers. Notes Jim Malcolm, Wells Fargo’s northeast small business strategy consultant: “We’re seeing increased lending demand [in this region]. This increase isn’t huge, but growing week by week and month by month.”
Some New Jersey banks report even stronger small business lending growth. “Borrowing demand at our bank is way up,” says Jim Harte, senior vice president in Investors Bank’s lending division in Short Hills. “I’d say our lending here is twice what it was a year ago.
“There’s been an improvement in the economy,” he says. “People are a little less concerned about the future. They are looking more at the upside of things … looking to expand.”
More Aggressive Lenders
Of course, a more positive attitude of small businesses toward borrowing doesn’t guarantee every bank will see more of this trade. Banks have to work for it. “I have spearheaded a big push by our bank to get this business,” says Harte. “We do significant outreach. We have a special credit training program for all our bank managers that helps customers get through the process.”
One thing his bank has not done to attract more small business customers, Harte emphasizes, is lower its underwriting standards. “It’s not necessary because there are lots of good opportunities out there.” And beyond this, “in the past, we learned the folly of doing it. … You’re not doing the customer a favor by doing it either. It only leads to trouble down the road.”
Wells Fargo, which already loans more money to small businesses than any other bank, has announced a goal of extending $100 billion in new small business lending by 2018. It has a number of programs to help achieve this goal, including a recently introduced small business educational tool.
This is designed to help any small business and is open to everybody, says Malcolm. It covers a lot of areas of interest to start ups as well as already operating enterprises. It has information and advice from industry experts, suggestions on getting new customers, information on credit and other bank products.
“It’s really great for people already working 18-hour days,” he says. And for those using the tool who wish to discuss a special area of interest in more detail, there’s information about how to contact one of Wells Fargo’s experts in this area.
Many other banks in New Jersey are offering an expanded range of services with special appeal to small business customers who have very crowded work days and are seeking greater convenience. One such service that’s become quite popular in recent years is remote deposit, which eliminates the need to come to a bank in person.
A tried-and-true method that banks have always used to attract new small business customers is still being employed by these lenders. “Our branch and lending personnel actively network in our local chambers of commerce and prospect within our neighborhoods as a way to get a broad scope of business loan inquiries,” says Vincent Micco, director of sales, commercial/residential mortgages and SBA lending with Kearny Federal Savings Bank in Fairfield.
Spreading the net wider, he says: “We also recently created a commercial and industrial lending team that will help us expand our relationships with [certain] small businesses.” And he adds, “We are currently experiencing more activity in SBA lending, in part because of a unique promotional initiative we undertook in 2013 in which we paid the SBA Guaranty Fee for the applicant. Our SBA business development team is very diligent and responsive in sizing up loan requests and getting loan decisions expedited.”
SBA Pros And Cons For Banks
Small Business Administration-assisted lending is attractive to borrowers for a variety of reasons. It often requires as little as a 10 percent down payment and comes with more flexible repayment options than conventional business loans. Loan amounts here are available from $25,000 to $5 million, with terms up to 25 years. Funds provided can be used for business acquisition, expansion, refinance debt, working capital, machinery/equipment purchase, land and buildings – including purchase, renovation and new construction.
Not all New Jersey banks are currently very active with the SBA, but the number that are is growing. “All the big banks are already active here,” McWeeney says, “and a select group of community banks as well. It’s a market niche that more and more of these [community] banks are now moving to include in their business models.” But to get there, he adds, “you need a trained staff and you need to generate enough [SBA] lending to make it work.”
Harte agrees with this analysis. “We’re not a big player in SBA lending,” he says. “We don’t yet have the volume for it to make sense for us.”
Those community banks that have become active can offer borrowers certain advantages. “We’re an SBA preferred lender,” Micco says. “Being a preferred lender allows us to grant loans in-house without sending the file out for SBA underwriting, translating into faster loan approvals, reduced paperwork and quicker access to funds” for small businesses.
Another extra benefit that some banks with strong SBA programs can offer small businesses derives from the volume of loans they do in conjunction with the agency. “Wells Fargo has been the No. 1 SBA lender nationally for the last seven years,” Malcolm says. This has given it a wealth of experience that could benefit a borrowing business. “We’re very good at partnering and working with the SBA,” he says.
Small Business Growth Areas
New Jersey boasts a very diverse universe of small businesses. Many are still not feeling the effects of a generally improving economy, of course. But the banking executives we spoke with cite a number of areas where small business growth is generating considerable demand for loans now, and is likely to continue doing so into the future.
Professional services got a frequent mention here. And this was especially true when it came to enterprises in the healthcare field, as baby boomers consume ever more of such services.
When it comes to the reason these and small businesses in other fields are borrowing more these days, buying and improving commercial real estate was often cited. One fairly typical example of this trend in a non-healthcare setting is noted by Micco: “We have observed an increase in auto body shops applying for loans to purchase larger properties to house their expanding businesses.”
Thus, the demand for loans is there, and lenders are well positioned to meet it. “For small businesses in New Jersey,” McWeeney says, “the state’s banks are a great asset. We have the biggest banks, many community banks and a growing number of banks that service ethnic communities.
“All have their target markets. There’s plenty of competition. And they have plenty of capital to lend.”Related Articles: