Small Companies Compete As Grip On Businesses Borrowing Loosens

By John Voket

When business people think about where to borrow money to either grow, improve, or sustain their commercial interests, many of them undoubtedly think bigger is better, or at least the best place to start.

But even during the darkest days of the recent recession, as major banks were freezing lines of credit for longtime customers who never missed a payment, or scaling back on business products and services being offered, Newtown Savings Bank (NSB) was not only holding its own, it was thriving.

Now that demand is up and business is finally improving for many companies, they are doing what they always do at the beginning of an expansion — calling the bank and asking for a loan.

And in a stark contrast to the depths of the financial crisis, big banks are finally coming around to saying yes again — perhaps because they saw so many clients jumping to new, smaller and more responsive local and regional financial institutions.

That trend is clear locally, according to Bill Calderara senior vp/ chief lending officer at NSB, which was the number one ranked commercial mortgage lender in 2010 in the communities the bank serves in western Connecticut.

“In 2010, Newtown Savings Bank wrote 8.9 percent of total commercial lending business representing 27 loans totaling $6.7 million,” Mr Calderara said.

The local bank also continued to maintain robust inventories of commercial loans, construction lending, and lines of credit.

“We’ve always been busy and got busier as big banks pulled out of the market,” he said. “Newtown Savings not only continued to lend to existing clients, we picked up some of the other guys’ good customers who turned to them for assistance, but found they were restricted.”

Now just three to 15 months later, NSB officials are seeing the end result in ribbon cuttings, grand openings, renovations, borrowers purchasing equipment or even buildings they formerly rented, and companies opening new facilities — even constructing new buildings.

For Pat Caruso at Newtown-based Associated Refuse, it was a substantial loan so he could acquire a new building that now serves as his company’s business office and vehicle maintenance center. More than one-third of Associated Refuse’s overall expenses are tied up in properly maintaining safe vehicles and equipment, he added.

“Acquiring this building will greatly improve our bottom line because we will be able to perform most of our vehicle maintenance, as well as maintaining an inventory of parts, in house,” Mr Caruso told The Bee. “The more we can maintain control of that maintenance and the control of those parts, the better.” Mr Caruso said that the new administrative offices have also done wonders toward improving staff morale.”

For Architectural Glass Industries, LLC in Newtown’s Curtis Office park, NSB was not just the only game in town when the company went looking for a bank to provide an equipment loan and substantial line of credit. According to co-owner Laura Tofinchio, NSB was the only bank anywhere that answered the call.

“We’re in business because of NSB,” Ms Tofinchio said. “They financed the key piece of equipment we needed to launch, our tempering furnace.”

Most businesses that use this type of specialized equipment can expect to pay between $500,000 and $1 million for such an item, she said, while not disclosing the amount of the NSB transaction.

“And we also shopped interest rates on business lines of credit with other lenders, but we could only access the sizable credit line we needed locally,” Ms Tofinchio added.

The Lending Relationship

Joe Young at Tier 1, a high tech manufacturing center bucking to be a local research and manufacturing incubator said his company interviewed with five lenders, before settling on NSB, even though the overall cost for the financial services required were not the lowest offered.

“As we went through the process of interviewing lenders, it was evident that our relationship with the bank was more important than the rates,” Mr Young said.

“We’ve always gone head-to-head with the big guys, but while others pulled back, we stayed out there and kept making good investments locally,” Mr Calderara said. “And even though some of the big players are back in the game, as we see it today, none of their lending decisions are being made in the market.”

On the national front, according to a recent Associated Press report, during the last three months of 2010, US Bancorp wrote $8 billion in new business loans, the most in two years. JPMorgan Chase added 400 midsize companies as clients, and bank loans overall grew for the first time in two years, according to the Federal Reserve.

Loans are one of the best gauges of economic growth.

Small and midsize businesses that form the backbone of the US economy take them out to pay for business needs — unlike big corporations, which go to the bond markets for low-cost debt.

Borrowing by smaller companies is being watched especially closely because it also may indicate those companies are preparing to hire. So far, the economic recovery has not been accompanied by job growth.

Small companies created about three of every five new jobs over the past two decades.

Those companies took a pummeling during the recession as bankruptcies skyrocketed and job cuts multiplied. Firms employing fewer than nine people accounted for more than half the jobs lost in the first quarter of 2010, just after the recession technically ended, according to the US Labor Department.

And many small businesses blame banks for making matters worse by pulling back credit dramatically after the financial crisis.

A Hopeful Sign

In another hopeful sign, about 75 percent of the loans taken out in the last three months were to pay for mergers and acquisitions. That shows companies that can afford it are buying up weaker competitors as they prepare for growth in the months ahead.

Still, while many companies have opened up lines of credit, many are not using them yet, reflecting their hesitation. About 25 percent of small businesses applied to renew a credit line in 2010, while only 13 percent tried to get a business loan, according to the National Federation of Independent Business.

The companies that were the first to apply for a line of credit were those that hunkered down the most during the recession because of massive sales declines, but were now suddenly experiencing sales growth.

For instance, manufacturers of plastic containers and packages saw sales increase about five percent in 2010 after a 16 percent decline in 2009. They nearly doubled their credit lines, to about 2.8 percent of their assets, according to SageWorks, a firm that analyzes financial trends at private companies.

Associated Press content was used in this report.