The dog days of recession for commercial lenders

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Commercial lending is not a business for the faint of heart.

Several years ago, lenders worked overtime — scarcely able to keep up with demand. Now, they must patiently stay the course, until the market scrapes bottom before rising.

Nationally, commercial and industrial lending is described in such reticent terms as “unlikely to loosen quickly.”

A survey of senior loan officers, released last week by the BBVA Economic Research Department, showed that commercial banks continue to have “anemic demand” for commercial real estate loans, but that is to be expected “given the national CRE delinquency rates of 7.92 percent, according to the Federal Reserve.”

And loan officers expect the cycle will last longer than during previous recessions, as will the “difficulties in restarting the secondary market for commercial mortgage-backed securities.”

In El Paso County, the market is down, though not as dire.

During the second quarter, loan growth was up year over year at U.S. Bank, said Tom Naughton, regional president. But commercial lending is “soft” right now.

“Locally, people are being cautious,” he said. Business owners are not using their lines of credit, and “there’s a lot of cash on the sidelines.”

And while business owners are “much more aware” of the safety and soundness of the financial institutions they do business with, they also are working on “internally generating funds, rather than borrowing,” Naughton said. “So much here is driven by real estate — development lending and construction.”

Loans will begin to increase when business owners see positive signs in the economy. But that will likely take a while.

Commercial loans lag residential loans because “commercial buildings typically follow (residential) rooftops,” said Jim Harris, southern Colorado business banking manager for Wells Fargo.

And historically, “the largest loans we make are secured by real estate,” he said.

Although the number of “industry players has declined locally, the ones that survived are doing better than last year,” Harris said.

Some national companies have closed satellite offices in Colorado Springs, which has benefited local businesses.

“Quite frankly, there’s less competition,” he said. “I don’t think we’ve necessarily seen the bottom on the commercial real estate side, but I do think we’ve seen the bottom of residential,” which is the first step toward commercial recovery.

There are some signs that the market is thawing, especially for nontraditional loans.

Dan Rundgren, senior business development officer for Wachovia Small Business Capital, said that U.S. Small Business Administration loans in Colorado Springs have taken a turn for the better since the end of June.

And for business owners who are contemplating ramping up before their competitors do, there is good news.

“The perception that banks aren’t lending doesn’t match reality,” Naughton said, largely because nonbank financial institutions — erroneously called “banks” — historically comprise about 70 percent of all lending.

And, of course, at regulated, FDIC-insured banks, credit underwriting guidelines are “more stringent” than they were before the recession, and getting a loan might take more effort and better credit than it used to.

“It’s the new normal — you just have to deal with it,” he said. “But for good, solid credit requests, there are always loans available — capital will flow where capital is needed.”

On the other hand, even when credit is available, it’s a question of whether business owners will take advantage of it.

“We’re not out of the woods, yet,” Naughton said. “And people are not going out and committing to capital purchases until they see improvements. Overall, business owners are being cautious and prudent, but good deals are getting done — loans are being approved every day.”