As federal and state programs kicked in to assist car dealers, area businesses indicated credit markets appear to be thawing, though at different paces for differing industries.
Connecticut banks appear to be weathering the recession in good shape, with Bridgeport-based People”™s United Financial Inc. increasing its commercial loans outstanding by $132 million during the first quarter to more than $9.3 billion in all.
Last week, Bridgeport-based People”™s United Financial Inc. hired former Merrill Lynch executive Chantal Simon as its new chief risk officer, with Simon having held a similar role overseeing Merrill Lynch”™s regulated banking entities in the United States.
Since Waterbury-based Webster Financial Corp. accepted $400 million in federal backing last November under the capital purchase program, only five other Connecticut banks have taken a combined total of $33 million under the program, including BNC Financial Group Inc., the holding company for Bank of New Canaan and Bank of Fairfield. With local banks filling the lending void created by larger national banks, the climate could improve further after the Small Business Administration expanded eligibility through September 2010 for its 7(a) program, which guarantees a substantial portion of loans made by banks to companies that might not be ordinarily able to secure credit.
Since reducing fees on its 7(a) loans in March and increasing the guarantee to 90 percent of the loan principal, the SBA said loan volume nationally is up by more than 25 percent.
The temporary 7(a) loan size standard allow businesses to qualify based on net worth and average income, similar to the standards for the agency”™s 504 Certified Development Company loan program. The net worth for the company and its affiliates cannot exceed $8.5 million; and the average net income after federal income taxes (excluding any carry-over losses) for the preceding two completed fiscal years can”™t be more than $3 million.
The new rules allow 70,000 companies nationally to gain access to the program, according to SBA estimates, including many impacted by the auto industry crisis such as dealers and suppliers. The Washington, D.C.-based National Automobile Dealer Association praised the changes, saying it was a critical step to unlocking the frozen credit markets and giving thousands of dealers the liquidity needed to stay open and avert layoffs.
In early May, Gov. M. Jodi Rell signed legislation to protect dealers if a manufacturer shuts down a product line, among other items requiring payment of the fair market value of a franchise”™s accumulated “good will” on the balance sheet.
Rell”™s office said 25 dealers in Connecticut have gone out of business so far this year, costing the state more than 2,000 jobs.
“We have already seen Pontiac fade away and lines like Saturn, Saab and Hummer are on the chopping block,” Rell said, in a prepared statement. “These are important protections for Connecticut dealers and they come at a critical time.”
The new SBA rules, of course, will assist businesses across a range of industries, not just auto dealerships. While large percentages of banks nationally did not tighten loan terms generally for small businesses between the fourth quarter last year and the first quarter this year, that was not the case for riskier loans for the smallest companies, according to a survey published this month by the Board of Governors of the Federal Reserve System.
Two thirds of banks charged higher premiums on loans deemed riskier, the Fed found, with larger banks particularly loath to taking on such debt.
In the first quarter, 40 percent of banks nationally reported tightening their commercial lending standards, down from 65 percent of banks in the fourth quarter last year and the first time since January 2008 the figure dropped below 50 percent.
More than half of banks reduced the size of credit lines, however, as demand for all commercial loans continued to fall.
As an example, Stamford-based Patriot National Bancorp Inc. reported that it recently began obtaining new appraisals on newly constructed properties four months before the loan is scheduled to mature, if there is no sales contract on file.
If a significant deterioration in the value of the property comes to light as a result of the new appraisal, the bank assigns a team of loan officers to monitor the loan status and makes an additional provision in its allowance for loan losses.
The bank added it was pleased with first-quarter payoffs in its construction loan portfolio, attributing it in part to increased activity in the spring home-selling season.
