As small businesses carp about the continued difficulties of securing credit, some appear to be taking matters into their own hands by shopping for a new bank.
For the third straight quarter, commercial credit conditions improved in Connecticut, according to companies polled by the Connecticut Business & Industry Association and TD Bank. A CBIA/TD Bank index on current conditions reached its highest level since the first quarter of 2009.
Still, nearly 42 percent of those polled described credit availability as fair at best, despite several area bankers that continue to maintain that they have not significantly changed their underwriting standards.
“The bankers haven”™t changed their standards on paper ”“ for some banks that”™s probably very accurate,” said Peter Gioia, CBIA vice president and economist. “But what they want to see is certain things in the financials before giving the loans, because the companies”™ own situations have deteriorated in terms of their accounts receivable.
“I think that there is some awareness (by business owners) that this is an issue,” Gioia added. “They”™re stuck.”
If stuck, some are doing their best to generate some traction. In the past six months, between 15 percent and 20 percent of small and mid-size businesses have gone shopping for a new bank, according to a survey by Greenwich Associates, a Stamford-based company that performs surveys and market research on the financial industry.
In its latest survey of senior lending officers at banks, the Federal Reserve Board reported that terms on commercial and industrial loans for small companies appeared to ease for the first time since late 2006, with banks pointing to increased competition in the market as an important factor.
Historically, only about 10 percent of small businesses switch banks in a given year, Greenwich Associates added, and termed “striking” the rate at which U.S. companies are soliciting bids from banks. Greenwich Associates indicated the higher activity is being driven as much by negative factors associated with the recession and credit crunch, as by positive developments such as an increased demand for capital in any nascent economic recovery that could be under way.
Whether because of the tighter bank standards, better marketing or lower fees, as of mid-August bank loans guaranteed by the U.S. Small Business Administration were up 55 percent nationally from the same period a year ago.
In Connecticut, companies will soon have access to a new source of loans ”“ the $15 million Connecticut Credit Consortium, whose funding was authorized in mid-August by the Connecticut State Bond Commission.
When Gov. M. Jodi Rell originally proposed a Connecticut Credit Consortium in her February “state of the state” address, she had originally called for Connecticut to furnish $100 million toward the credit consortium, with private banks contributing another $400 million.
If a relatively small amount next to Rell”™s original vision ”“ or compared to the $400 million approved for a new high-speed rail line in central Connecticut and new rail cars on existing commuter lines ”“ the $15 million fund ultimately approved nevertheless could add up for small-business owners who have had difficulty obtaining credit via traditional channels.
Businesses with less than 50 workers are eligible to apply for up to $500,000 in loans and lines of credit. The Connecticut Department of Economic and Community Development is administering the program; at deadline DECD had yet to post loan applications or other information on its website.
