With commercial loan demand slackening, companies increasingly are saying “put it on plastic” at the vendor checkout line.
In 2004, Connecticut”™s 16 most active banks and credit card companies loaned $2.4 billion to 82,000 small businesses, according to the U.S. Small Business Administration (SBA), with credit card purchases registering a significant increase. Comparisons to previous years are difficult, due to the SBA broadening its criteria this year for what banks it includes in its analysis. For the eight banks and credit card issuers that the SBA provided data two years running, however, amounts loaned were up 15 percent in Connecticut.
While the number of credit cards shot up nationally due to aggressive marketing by lenders, actual dollar amounts crept up negligibly as borrowers tempered their demand in a slowing economy.
With commercial loans a key indicator of overall economic activity, Connecticut will take whatever gains it can get. In 2003, loans to small businesses totaled $847 for each resident, the worst record in the nation, according to CFED, a Washington, D.C., organization that studies economic trends. That was $124 behind Massachusetts, which had the next lowest total, and just 56 percent of the total generated by New Jersey, which only ranked 39th nationally.
Connecticut businesses do not appear to be carping. Just 12 percent categorized conditions as fair or poor in a recent poll by the Connecticut Business & Industry Association (CBIA) in Hartford and TD BankNorth, with two-thirds of respondents employing fewer than 50 people. Nine in 10 companies expect their access to credit this spring to improve or remain steady.
Confidence in obtaining credit catapulted in the fourth quarter of 2005 (see chart), and has remained high ever since. If there has been a change in the past year, it is that local companies are relying more on alternative sources of financing, such as credit from vendors, private loans and, of course, business credit cards.
“We have not had bad credit conditions in Connecticut, but that is not to say there is not a lot of worry out there about future conditions,” said Peter Gioia, vice president and economist for CBIA.
In a March assessment of the economy, the Federal Reserve Bank of New York indicated that a substantial percentage of bankers report tightened standards for all categories of credit ”“ particularly in commercial mortgages, though they added that there has been no change in delinquencies on commercial and industrial loans.
SBA defines a small-business loan at between $100,000 and $1 million, and a micro-loan for smaller amounts, largely generated by credit cards for businesses. For the first time this year, SBA included savings banks and savings and loan institutions in its analysis.
Webster Financial Corp. and Wachovia Corp. led in small-business lending, with Webster having 584 loans outstanding worth $196 million, and Wachovia with 576 credit lines at $215 million.
Credit card company Capital One FSB checked in with 22,000 micro-loans in Connecticut valued at $76 million, and Citigroup Inc. had 17,500 with a value of $101 million.
The only two Fairfield County-based banks to make the list were People”™s Mutual Holdings, which distributed 924 loans totaling $201 million; and Newtown Savings Bank, which made 374 loans at $51 million.
Nationally, SBA ranked Utah-based American Express Bank FSB as the top small-business lender. Waterbury, Conn.-based Webster Financial ranked 23rd nationally; People”™s was 41st.
Nationally, lending to small businesses was up as of June 2005, as banks extended an additional $24 billion in small loans, a 4.1 percent increase from the year before. The rate of growth slowed however.
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