Banks Reach Out to Small Firms

Posted on Tuesday, February 8, 2011

Natalie Smith, the manager of a U.S. Bancorp branch in an Albertsons supermarket in Milwaukie, Ore., is going to unusual lengths to make small-business loans. Last year, she cornered an eye doctor near the entrance, following him around until she learned he needed a commercial real-estate loan and equipment financing.
When he wasn't loaded down with groceries, the doctor came back to meet with Ms. Smith, getting two loans for a total of $250,000. Since June, her branch has made about a dozen small-business loans, ranging from $30,000 to $500,000 apiece. "It is impossible to know who is going to be in our stores," Ms. Smith said.
Banks and borrowers are having a hard time igniting a rebound in small-business lending, which is lagging behind recent increases in loans to other types of companies and consumers.
Last week, the Federal Reserve said 10% of large U.S. banks reported easing loan terms for small businesses in the past three months, compared with nearly 20% for medium-size or large companies.
According to a January survey by the National Federation of Independent Business, 91% of small businesses aren't interested in borrowing or have had all their credit needs met already.
"It's a tale of two markets," said John Barlow, president of Barlow Research Associates Inc., which tracks lending. In January, 26% of small businesses surveyed by the Minneapolis firm reported being denied additional credit over the previous year or not applying for credit because they expected to be rejected. Only 4% of middle-market companies, or those with revenues of at least $10 million but less than $500 million, said the same thing.
In the third quarter, U.S. banks and savings institutions had $631 billion in outstanding "small" loans to businesses, down 5% from $667 billion as of March 31, according to the Federal Deposit Insurance Corp. Fourth-quarter figures haven't been released yet, but the totals include loans with an initial amount of $1 million or less.
The number of small-business loans and lines of credit made in the third quarter are down more than 70% from their precrisis peaks, according to Equifax Inc. and Small Business Financial Exchange, which declined to provide specific numbers. The data were collected from roughly 380 banks, credit-card companies, credit unions and other lenders.
Much of the holdup in small-business lending is caused by the continuing struggles of many entrepreneurs to overcome weak sales and uncertainty about the future, says William Dennis, a senior fellow with the NFIB Research Foundation, part of the small-business trade group. The tumble in real-estate values also made it harder for small-business owners to use a home or commercial property as collateral for a loan.
Healthy, profitable U.S. banks say they are ready, willing and able to rev up small-business lending.
Bank of America Corp. has promised to add 1,000 small-business bankers during the next 18 months. This week, U.S. Bancorp began training employees at nearly all of its 773 branches in supermarkets on how to make small-business loans. The push expands the program used at Ms. Smith's office in suburban Portland, Ore.
"We found that small-business people have to eat, too," says Rick Hartnack, U.S. Bancorp's vice chairman for consumer banking. During the past two years, U.S. Bancorp also has added more than 100 private bankers who can sell loans and other products to doctors, lawyers and other small-business owners.
At Huntington Bancshares Inc., small-business loan originations climbed 27% in 2010 as some companies upgraded equipment or took advantage of lower real-estate prices to buy property, said Mary Navarro, head of retail and business banking at the Columbus, Ohio, regional bank.
Small-business loan-approval rates at Wells Fargo & Co. "are well up" compared with early 2010 as more firms try to seize on new business opportunities rather than keep themselves afloat, said Marc Bernstein, an executive vice president at the San Francisco bank. In the fourth quarter, Wells Fargo made $4.6 billion in loans to businesses with revenues of $20 million or less, up 18% from a year earlier.
Many banks say demand from the smallest companies remains weak. Webster Financial Corp. is seeing a much stronger rebound in loan demand from midsize firms than small companies. In the fourth quarter, the Waterbury, Conn., bank made $120 million in loans to companies with revenues of $10 million to $250 million, up sharply from just $9.8 million in the first quarter. Loans to smaller companies rose 71% to $37.9 million from $22.1 million.
To spur growth, BB&T Corp., of Winston-Salem, N.C., has been reminding bankers to call on small businesses that said they didn't need credit during the economic downturn. At Huntington, bankers dedicated four days in a row in January to making calls to prospective small-business borrowers. They usually zero in on them for one day a month.
On Feb. 1, Bank of America introduced a new software program to make it easier for bankers to offer credit cards and other products to small-business owners who walk into the Charlotte, N.C., company's branches—and to refer them to other bankers who specialize in complicated products.
BB&T and J.P. Morgan Chase & Co. say they are looking more closely at quarter-to-quarter comparisons when they evaluate small-business loan applicants to see if there are signs of a turnaround. Bank of America now gives more weight to orders and anticipated revenues when weighing a company's prospects.
Loan officers at Webster have been told to put more emphasis on character. "We want to recognize those people who have made the necessary changes in their business," says John Guy, head of small-business banking.

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