Small- and medium-sized business owners say they are feeling more confident this year. But many of them are still being cautious about boosting capital expenditures and are waiting for more signs of economic recovery, according to local bankers. Banks are forecasting a “slow but steady increase” in loan demand in coming months.
Paula Mandell, regional president at M&T Bank, said she”™s been seeing a “moderate increase” in local loan demand. M&T Bank”™s overall loan growth in Westchester County was up about 11 percent during January and February compared to last year, with growth mostly coming from large, middle-market type companies and real estate.
Small businesses are still lagging behind, “but we are also seeing a slight pickup on that side as well.”
An upturn in borrowing
Mandell said she is cautiously optimistic. “We think it will be slow growth but we do believe that it will be slow and steady. We are seeing borrowers put (in) requests to finance the buildup of inventory again, to finance some capital expenditures,” she said.
“But again, I don”™t want to say it goes back to the boom of prior to the recession. But many businesses had put their capital expenditures on hold and put off buying a piece of equipment or expanding the building. And now they see it as a time to be able to maybe take advantage of a low interest-rate environment, with a slightly improved economy.”
Michael Cappelli, business-banking executive for Westchester at Bank of America, said loan demand in the county has “picked up slightly” in more recent months but remains far from pre-recession levels.
Without question, the last couple of years have been challenging for small and medium-sized businesses, Cappelli said. “In general, we saw lower demand for new credit, due largely to a decline in demand for many companies”™ goods and services. Until that demand improved, those businesses weren”™t going to actively seek new loans.”
He said some clients are exploring refinancing but that most are holding off on aggressive growth plans, instead watching for more signs of recovery. “In this climate, we”™re trying to make every good loan we can, and we”™re optimistic that the economy will continue to recover and enable our small and mid-sized business clients to grow as needed.”
Loan demand could pick up later this year
Westchester Bank CEO John Tolomer said that after a difficult economic climate, he”™s now seeing more business confidence. And while loan demand is still sluggish, he expects things to improve in the latter half of this year.
“When you are talking about loan demand in general, I would say it is still a bit sluggish at this juncture. And much of the new loan requests are refinancing from maturing loans and mortgages that are currently with other institutions. In terms of our existing customer base, many are redoing their lines of credit, continuing to do business,” he said.
There is a bit more confidence from customers and businesses, which generally spurs recovery. “I am not yet seeing a turnaround but I am seeing the beginnings of confidence in the economy.” Tolomer expects to see a more genuine business recovery and higher loan demand during the third and fourth quarter of the year.
He said that despite the tough environment, businesses that have strong fundamentals have weathered the downturn in good shape. “Businesses that are focused on customers”™ every needs and deliver good value for them have fared well and will continue to flourish as the economic recovery gathers momentum.”
At Hudson Valley Bank, CEO James Landy commented that after very soft demand last year, there is now a “slight increase” in commercial real estate requests in Westchester and other markets. “Requests are for a variety of reasons, some for acquisitions and others for lines of credit for operations and in some cases, expansion. We are also seeing an increase in refinancing requests. Loan demand is picking up.”
Hudson Valley Bank is particularly active with multifamily lending, which provides businesses cash to buy, expand or refinance residential buildings of 10 units or more.
Survey shows improving optimism
According to the latest Wells Fargo Gallup Small Business Index survey, 2011 first-quarter results show the first signs of improvement in optimism since the Great Recession.
Small-business owner optimism rose for the second consecutive quarter, lifting out of negative territory ”“ the first time since fourth quarter 2008, according to Wells Fargo spokesperson Kevin Friedlander. “Business owners are more optimistic about the future as they expect improvement in their financial situation, revenues, jobs and credit availability.”
Friedlander observed that loan delinquencies have dropped significantly over the past six months as more business owners are able to pay their loan payments on time. However, he said, “many small businesses are still having trouble repaying the loans and defaults remain high. We”™re finding that business owners remain cautious as they go through the healing process from the impact of the Great Recession.”
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