Source: Mercury News.com, May 14 2012, by Rose Meily

Much like most residential real estate markets, the commercial real estate market is showing signs of recovery, but tight lending standards, particularly for small businesses, appear to be impeding growth, according to the National Association of Realtors’ annual Commercial Real Estate 2012 Lending Survey.

“This is very much a tale of two markets. There have been notable improvements in business capital for large commercial transactions valued at $2.5 million or higher, but there remain significant challenges for small business,” said Lawrence Yun, the national group’s chief economist.

“Our Realtor members typically are involved in helping commercial clients with purchases under $2 million, where a lack of business capital has caused two out of three respondents to report deals have fallen through. Given that most jobs are created through small business, the lack of capital is hurting small businesses and the overall economic recovery,” explained Yun.

According to Real Capital Analytics, more than 13,000 major properties valued at $2.5 million or higher traded hands in 2011. Sales volume increased 51 percent over 2010 to $205.8 billion, with the lion’s share of lending funds coming from big banks. Other business funding sources include insurance companies and institutional investors.

By contrast, the survey shows that small business transactions rely heavily on smaller regional and local banks, and small private investors, for lending capital. Respondents indicate nearly 30 percent of smaller commercial properties are purchased with cash, reflecting the tight credit environment, and some are seller financed.

“When credit is tight, cash is king,” Yun added.

The most common types of property transactions referenced in the survey were multifamily, land, warehouse, suburban office and retail strip centers. Other property types include industrial flex space, central business district office, freestanding retail and restaurants.

Longtime investors who never had a problem getting a loan in the past are now being declined. More than half of respondents say small business lending is just as stringent as a year ago, while 23 percent say it is more stringent; 20 percent say it is less stringent but not near historical averages. Members also complained about banks being over-regulated, and refinancing being denied due to stringent internal lender underwriting requirements or low appraisal valuations.

“If real estate is to fully recover, the lending industry needs to do its part by employing a more flexible approach to commercial financing and making loans more accessible to creditworthy borrowers and small businesses,” said Suzanne Yost, president of the Silicon Valley Association of Realtors.

The Commercial Real Estate 2012 Lending Survey is published by the National Association of Realtors Research Division for the commercial community. In April 2012, a random sample of 32,459 agents with an interest in commercial real estate was invited to complete an online survey. A total of 474 responses were received, for an overall response rate of 1.46 percent.

Source: Boston Globe, May  10 2012, by Bernard Condon

NEW YORK—Federal Reserve Chairman Ben Bernanke said Thursday that many businesses and consumers are finding it easier to borrow as banks shore up their balance sheets.

“Notwithstanding the various headwinds, credit conditions in the United States have improved significantly in a number of areas,” Bernanke said.

He said that large companies are selling bonds at historically low interest rates and that people with strong credit have “ready access” to credit card and auto loans.

But he also noted that many creditworthy Americans are finding it difficult to get mortgage loans. He said small business owners who have used their homes as collateral for loans also face “challenging” conditions.

Bernanke’s comments were prepared for delivery at a banking conference in Chicago.

The Fed chairman said that banks have made “considerable progress” in shedding risk from balance sheets and building cushions against future loan losses. Cash and securities holdings at large banks have doubled since 2009, he said.

He also said that the way banks fund themselves has gotten safer. He said large banks are now “flush” with deposits and depend less on “short-term loans” from financial institutions for their own borrowing needs.

In the financial crisis in the fall of 2008, much of the lending among financial institutions in this so-called wholesale funding market froze, spreading panic and helping push the economy into its deepest recession since the Great Depression.

Bernanke noted that most of the 19 largest banks passed “stress tests” earlier this year, meaning they would likely survive and be able to lend in a financial crisis worse than 2008.

In those tests, regulators supposed the unemployment rate would spike to 13 percent, stocks would drop by half and home values would drop by more than a fifth.

Bernanke said loans to U.S. homeowners have fallen 13 percent from their peak, after adjusting for inflation. He said a slow economic recovery, a troubled housing market and caution by lenders mean that situation is unlikely to improve quickly.

Turning to small businesses, Bernanke said small loans from banks, though increasing, were still 15 percent below their 2008 peak at the end of last year.

In response to criticism that heightened scrutiny by regulators has made it difficult for banks to lend, Bernanke said the Fed has stressed to supervisors on its staff to take a “balanced approach” in overseeing banks.

In a news conference following a two-day policy meeting last month, Bernanke listed “credit tightness” among several factors holding back economic growth. He expressed hope that those conditions would soon improve.

To spur borrowing and stimulate the economy, the Fed has been selling short-term Treasurys and buying long-term ones in a maneuver known as Operation Twist.

Buying long-term bonds helps push their prices up and their yields down. Since many loans are tied to Treasurys, lower yields can mean lower interest rates for consumers and businesses. The bond-buying program ends in June.

Source: American Banker, May 8 2012, by Alan Kline

The pace of small-business lending slowed in April as demand from borrowers weakened and lenders of all sizes approved fewer loans.

Total loan requests fell 5.4% in April when compared with March, according to an analysis of lending trends released Thursday by Biz2credit, a New York firm that matches borrowers with lenders. It was the first month-to-month drop in a year, Biz2credit said in a news release Tuesday.

Meanwhile, an analysis of loan applications found that loan approvals at large banks — those with $10 billion of assets or more — fell for the second straight month and that approval rates at smaller banks declined for the first time since August of last year.

Large banks approved 10.6% of loan requests, down from 10.9% in March and 11.7% in January and February. Small banks approved 45.9% of requests, compared to 47.6% in each of the prior two months.

Approval rates also declined slightly at credit unions, to 57.4%, and held steady at alternative lenders at 63%.

Rohit Arora, Biz2Credit’s chief executive, said that the slow pace of the economic recovery is causing both borrowers and lenders to “proceed with caution.”

“The disappointing April jobs report, in which only 115,000 new jobs were created and when the expectation was much higher, is an indication that the economy is slowing down,” Arora said. He added that high oil prices and an intensifying fiscal crisis in Europe have only added to the uncertainty.

Also contributing to the overall slowdown in small-business loans was the March expiration of a temporary 90% guarantee on Small Business Administration loans and the reinstatement SBA loan fees that Congress had temporarily waived in an effort to stimulate lending, Arora said. The guarantee level fell back to 75% in April and the SBA again began assessing fees equaling 1% to 3% of the total loan.

“This played a big part in the drop in loan demand and the reduced willingness of banks to grant funding requests,” Arora said.

Source: WSJ.com, May 9 2012, by Angus Loten

One of the potential downsides of being a supplier or a vendor to a big company is that you may have to wait a while to get paid.

‪On average, big businesses – those with 1,000 or more employees – paid their bills more than a week past the due date on invoices, according to a report that’s expected to be released by Experian next week.

‪These big businesses appear to be taking even longer than they did last year to cut checks, and thus, settle their accounts with suppliers: The wait beyond contracted terms – that is, the date agreed to at the time of a sale – grew by 27% over the past year, from six days to nearly eight days, according to Experian.

‪‪This trend is particularly disturbing for many small business owners and start-up founders, because they tend to be highly dependent on regular cash flows for working capital to pay their own suppliers and vendors, along with their employees.

‪”You’ve done the work, but there’s no cash coming in,” says Brandon Cotter, who runs an online small-business invoicing service.

About 14% of nearly 5,000 entrepreneurs cited late payments — or customers that didn’t pay at all — as their biggest challenge in 2010, up from just 2% in 2008, according to a study released Wednesday by the Ewing Marion Kauffman Foundation of Kansas City, Mo.

In 2011, small businesses waited up to 46 days on average to get paid, six days longer than in 2010 and 10 days longer than 2006, according to the National Federation of Independent Business, a small-business lobby group.

‪Small business loan broker Ami Kassar in this video makes the argument that big companies should try to help America’s small businesses by paying their bills in 10 days, rather than several months.

How long are you waiting to get paid by the big companies you are supplying? And how are big companies that are late payers affecting your business?

Source: CNN Money, May 7 2012, by Parija Kavilanz 

American manufacturers say business is booming again, but many are complaining that banks aren’t lending them money to ramp up production.

In a new quarterly survey of small to mid-sized manufacturers, 26% of 268 respondents cited “lack of capital to grow” as their biggest challenge at a time when they need loans to hire more workers, buy new equipment and aggressively market themselves.

The survey was conducted in April by MFG.com, an online directory that pairs businesses with manufacturers that can produce their goods domestically.

Banks, aware of a domestic manufacturing resurgence, say they’re willing to lend, according to a range of regional and national financial institutions CNNMoney talked to. But they are proceeding with caution, especially with loans to smaller contract manufacturers or “machine and job shops.”

Alabama’s manufacturing boom

Their concern is that these types of businesses are too dependent on short-term contract work. When the economy is good, the work picks up, but projects can also quickly dry up anytime there’s a blip, putting banks’ loans at risk.

Matt Henderson, president of Performance Machine & Manufacturing, operates two machine shops in Tennessee that make parts for the automotive industry.

Revenue at his company is up 80% over last year, reaching more than $3 million. As business revs up, Henderson desperately needs about $140,000 in financing to expand and hire workers.

But he’s struggling to get the loan, despite showing banks that business is booming.

His 30-person staff is working six to seven days a week to meet demand. While that’s a good sign for the company, it’s also forcing him to pay a substantial amount of overtime.

“If I get the loan, I can hire three full-time and two part-time workers and buy new equipment,” said Henderson. “I also want to do a heavy marketing campaign to bring in more business.”

His former bank, Bank of America, denied him the loan. His new bank, Regional Finance, offered one, but it’d come with a 6% to 7% interest rate and require a personal guarantee, meaning that Henderson would have to put his own money on the line. Those terms were “unreasonable” to him.

Don Vecchiarello, spokesman for Bank of America, didn’t address Henderson’s situation directly but did say the bank has increased overall lending to small businesses, including manufacturers.

“We’ve also hired more than 800 small business bankers to work with companies and assess their credit needs,” he said. “We want to make every good loan we can, because we also make a profit off these loans.”

Domestic factory work has heated up considerably in the last 12 months as more U.S. companies bring back production from overseas, and others commit to a Made in USA business policy.

Consequently, manufacturers overall are adding more workers every month.

But “manufacturing is a capital intensive business that requires equipment, tooling and raw material,” said MFG.com’s CEO Mitch Free.

If small factories don’t get loans soon, Free said it could stymie the nascent resurgence, and put the brakes on hiring and economic growth.

“Any prudent business owner knows that cash is king. When funding is tight, you go into preservation mode, you restrict appetite for expansion and this hurts the economy,” said Free. “We all feel it.”

California-based Superior Aluminum Products, a small manufacturer with 18 workers, makes parts for aerospace companies such as Boeing (BA, Fortune 500) and Lockheed Martin (LMT, Fortune 500).

It currently generates $10 million to $12 million a year in sales, and demand is rising. If business keeps at this pace, and the firm can secure a timely $1 million loan, CEO Ian Albert is confident he can boost revenues 40%.

“We can increase our sales, buy new equipment and hire 20 more workers,” said Albert, who has built and sold five other manufacturing companies in the past.

Getting the loan hasn’t been easy. Meantime, Albert is still grappling with the fallout from his old bank restructuring: He lost a $3 million line of credit that funded everyday business. He eventually left that bank.

He approached Bank of America (BAC, Fortune 500) and Wells Fargo (WFC, Fortune 500), and offered $4.5 million worth of equipment as collateral to borrow against, but they wouldn’t give him a credit line. “I finally went to a financing company and got it, but at higher interest rates.”

Hugh Long, Wells Fargo’s head of business banking, didn’t respond directly to Albert’s situation, but said his bank’s focus is to make every loan we can to “credit worthy” customers.

“We like making loans to manufacturers. As the economy begins to improve, these are the companies that can create wealth and jobs,” he said.

Wells Fargo’s bankers, Long said, are “aggressively” trying to identify the right manufacturers to make loans to.

He added that it doesn’t help companies or the bank “if we make loans to customers who can’t repay them.”

Michael McCracken, head of Banco Popular’s Chicago region, agreed.

“Lending to manufacturers is a hot area right now,” said McCracken. “But with smaller manufacturers, we have to consider if this [business] pickup is sustainable.”

Source: The American, May 2 2012, Scott Shane

Banks profit by making loans, not refusing them. So why are banks making fewer loans to small business these days?

On March 29, at a lecture at George Washington University, Federal Reserve Chairman Ben Bernanke innocuously remarked that lately “small businesses have … found it difficult to get credit.” Too bad that none of the students at the lecture thought to ask him why. A case can be made that the Fed is partially responsible.

Bankers, small business owners, and policymakers all agree that small business lending has declined substantially since before the financial crisis and Great Recession. Business loans under $1 million fell 13 percent between June 2007 and June 2011, and the amount lent has declined 19 percent when measured in inflation-adjusted terms, Federal Deposit Insurance Corporation (FDIC) statistics reveal.

But banks profit by making loans, not refusing them. So why are banks making fewer loans to small business these days? The decline is, in part, a response to the Federal Reserve’s incentives for banks to increase their lending standards.

The banks increased their lending standards because the Fed told them to stop making the kinds of risky mortgage loans that led to the financial crisis. Unfortunately, small business funding was collateral damage in the effort to get rid of bad lending practices in the home mortgage business.

Efforts to fix bad mortgage practices hit small business lending because many small business owners use home equity to finance their operations. As I have explained in an earlier column, 28 percent of small businesses tapped equity in their homes to finance their businesses at the peak of the housing boom, according to Barlow Research, a Minneapolis-based market research firm. During the housing boom, households in which someone owned a small business were more likely than other households to take out home equity lines of credit and to borrow more money on those credit lines, Federal Reserve Bank research finds. With many small business owners making use of home loans to finance their companies, the Fed’s efforts to get banks to improve their home lending standards has meant less small business borrowing.

Moreover, when banks increase their lending standards, those increases often occur across the board. Therefore, in addition to raising standards for mortgage debt, the banks tightened them on small businesses borrowing in the aftermath of the financial crisis, the Federal Reserve’s Survey of Senior Loan Officers shows.

The Fed might decide that the banks need to maintain today’s higher lending standards, even if that means less small business lending than we used to have. But it should be more honest about what’s going on. Instead of implying that “small businesses have … found it difficult to get credit” because of some mysterious outside force, the Fed chairman should say that the Federal Reserve has encouraged banks to cut back on small business lending as part of an effort to get them to make better loans. Such straight talk would be consistent with the Fed’s new strategy of greater transparency about what it is doing.

Source: BankCreditNews.com, April 26 2012, by Alexandra Villarreal

The House of Representatives approved H.R. 3336 on Monday, which extends exemptions from the regulatory burden of the 2010 Dodd-Frank Act to credit unions, community banks and other smaller financial institutions.

Rep. Vicky Hartzler (R-Mo.), the sponsor of the bill, also known as the Small Business Credit Availability Act, explained the importance of amending Dodd-Frank to minimize the reform legislation’s unintended negative impact on small-town America, Agri-Pulse reports.

“The current law stifles the [h]eartland,” Hartzler said, according to Agri-Pulse. “Small businesses in rural America should be able to access credit in local communities without the need to turn to national banks that are not familiar with the needs and concerns of this part of the country.”

Supporters of the legislation contend that while the increased regulation of large financial institutions is necessary due to the risk posed to the U.S. financial system, the same rules are not needed for smaller institutions.

“Although Dodd-Frank was supposed to reduce the power of big banks, it has actually had the exact opposite effect,” Hartzler said, The Hill reports. “My bill helps to reverse this trend and keep lending decisions closer to home.”

Hartzler further explained that the bill would increase the ability of small businesses to attain credit within their communities.

“This revision of Dodd-Frank is essential to farmers, manufacturers and small and rural businesses wanting to expand and create new jobs,” Hartzler said, according to The Hill. “Many of these businesses are often overlooked by large national banks and might not have access to competitive loans.”

Source: Wall Street Journal Blog, April 30 2012, by David Reilly

Banks aren’t racing to loosen pricing or lending criteria for mortgages, as reported in today’s Heard on the Street column. But that isn’t the case when it comes to business lending.

A quarterly survey of senior loan officers by the Federal Reserve, released Monday, found that business lending, or commercial and industrial loans, was enjoying increased demand – and greater competition among banks. The Fed reported that this was the second consecutive survey in which domestic banks reporting stronger demand for such loans outnumbered reports of weaker demand.

Reflecting this, business funding at commercial banks in the U.S. have risen about 15% between March 2011 and April 18, according to Fed banking-industry data. Among larger banks, business lending has been up nine of the past 10 weeks according to a report put out Monday by Jason Goldberg, bank analyst at Barclays.

Notably, the Fed survey also reported that while most banks kept business-loan conditions unchanged, a number of domestic banks reported having eased standards for those who got them. Of these, some had decreased the cost of loan rates to both medium and large companies, while a smaller group of banks also reduced their “use of interest-rate floors and reduced costs of credit lines.

The reason, at least among banks easing their terms: “more-aggressive competition from other banks and nonbank lenders.”

That is good for business owners, who should enjoy a lower cost of funding. If that helps spur further credit creation and growth, it should also be positive for the economy overall.

Source: Small Business Trends, April 30 2012, by Scott Shane  

According to the spring 2012 release of the twice-a-year PNC Economic Outlook Survey, small business owners are no longer as pessimistic about the economy as they were during the economic downturn and the early part of the recovery. However, they aren’t exactly back to their pre-recession optimism either.

The nationally representative survey of approximately 500 business owners and managers of companies with sales of between $100,000 and $250 million per year shows that the net percentage of respondents who were pessimistic (percentage pessimistic minus percentage optimistic) about the local economy was 22 percent in the spring of 2012.

This was the lowest level since the fall of 2007, when the net percentage pessimistic was 1 percent. But back in the fall of 2004, 9 percent of small and medium sized business owners were more optimistic about their local economy than pessimistic about it.

A similar pattern can be seen in the business owners’ optimism about their own companies. A net 11 percent were optimistic this spring, the most positive level since the fall of 2007. But again, these numbers are low in comparison to before the recession. In the spring of 2007, for instance, a net 30 percent of respondents were optimistic.

Moreover, decision makers at small and medium-sized businesses remain profoundly pessimistic about the national economy. A net 38 percent were pessimistic about that in the spring of 2012. In comparison to the net 15 percent who were optimistic in the fall of 2004, that’s not very positive at all.

Then again it’s not the horrific net 69 percent pessimistic about the national economy recorded in the spring of 2009.

Source: Small Business Trends, April 22 2012, by Rohit Arora  

Small business loan approvals by big banks ($10 billion+ in assets) dropped to 10.9% in March, down from the 11.7% figure reported in February. This figure represents a 6.8% decline over a one-month period and from the 11.6% approval rate one year ago in March 2011.

Big banks are always the most cautious, particularly when economic news is less than rosy. The March jobs report found that only 120,000 new jobs were created, significantly short of estimates of 300,000+ positions created. Meanwhile, the rising price of oil also makes borrowers and lenders wary.

So while the availability of small business capital has improved over the past 12 months than in 2009 or 2010, the flow of capital may be slowing, which is a cause of concern.