Some Richmond-area banks are growing pickier about which businesses get financing. With a possible recession on the horizon, banks are extra careful to protect their investments. And there’s less money to lend, bankers say, in part because of fallout from residential mortgages (read: subprime meltdown).
“We’re going to show selectivity to who we lend to by offering better rates to those we really want,” said John Neal, president and CEO at Union Bank and Trust, which has branches around Richmond, Charlottesville and Fredericksburg. “We are seeing a lot of stress with businesses because their deposits are all down. They also tell us they’re not selling as much.” The good news, according to Neal, is businesses that bank with Union Bank and Trust have not closed or foreclosed on their buildings. Also good news: lower interest rates could also make borrowing cheaper for companies with solid credit. And unlike national lenders, which might tighten across the board, community banks examine the local market and the individual company.
But The Wall Street Journal reported last week that, “Start-ups and smaller companies are finding that banks are setting higher rates, seeking more collateral or lending smaller amounts.”
“Small companies with less-than-perfect financial histories—the majority of American companies – are being hit especially hard,” the WSJ said.
Bruce Whitehurst, president of the Virginia Bankers Association, said banks keep a careful eye on Main Street. “In this environment, there’s just a lot of uncertainty, and more attention is paid to credit quality,” Whitehurst said, adding that he’s not heard about a lending pull-back at banks around Richmond or Virginia.
Perhaps one bright spot: many business loans are secured with commercial real estate, which has not depreciated like the residential sector, Whitehurst said.
But the WSJ reported that a recent survey by the National Federation of Independent Business found that 7% of small-business owners said in December they were having problems getting financing, up from 4% in November. (BizSense was unable to interview businesses that are trying to get loans.)
Lending criteria and volume hasn’t changed at Richmond-based First Market Bank, which typically lends businesses between $20,000 and $5 million. “Some industries are not doing so great, like construction,” said Dave Fairchild, president at First Market Bank. “But some of our contractors are doing great, and you say, ‘Gosh, that’s an industry that’s shaky.’ You’ve got to look at each one at a time.”
That sort of approach benefits consistently profitable companies. PeakLogix, a material / logistical efficiency company in Midlothian, has a six-figure line of credit with First Market Bank. The company, which has around 30 employees, shows the bank its balance sheet.
“The concern (for banks) is with management, “said Bob Giberson, president and CEO at PeakLogix. “Banks want to be sure borrowers are making moves to downsize or to keep the business in the black. That way they feel comfortable with their risk,” Giberson said.
“If the answer is yes, then you’re ok. If they get a sense management isn’t making the right moves, based on the financials, lending could get very tight.”