Experts: Lending should improve despite economic ‘headwinds’
The past few years have been especially tough between businesses and banks, but signs are pointing to an improved climate for lending in the next year, a group of financial experts told suburban business leaders Thursday.
However, they warned, businesses shouldn’t expect things to return to pre-recession levels.
The experts spoke to about 80 business executives at the Daily Herald Business Ledger Newsmakers Forum on banking and finance, held at the Arrowhead Country Club in Wheaton. The panelists agreed there have been a number of positive signs this year that are leading to banks lending more money for businesses, but there are some “headwinds” that are keeping the businesses and the economy in general from generating any steam.
George Morvis, president and CEO of Financial Shares Corp. in Chicago, took it a step further by saying that federal regulations on the banking industry brought about by the financial crisis in 2008 mean that while banks will be making loans, getting them will be more expensive and tougher.
“We are in the new normal,” Morvis said. “We will need to learn to live within this situation.”
Morvis said while large banks will survive, smaller community banks will struggle to meet the new federal standards, and many will close or be taken over by larger banks. Morvis suggested business owners should start secondary relationships with banks to protect themselves if their primary bank is forced to close or be acquired by a larger firm.
Rick Mattoon, senior economist and economic adviser for the Federal Reserve Bank of Chicago, was more optimistic, noting that while housing and labor issues continue to be an anchor on the economy, the Midwest in particular is poised to rebound thanks primarily to solid growth in the manufacturing and agriculture industries.
“We have in place all the mechanisms necessary for the economy to take off, it’s just a matter of when that timing is going to occur,” Mattoon said.
That sentiment was echoed by Kevin Brown, senior commercial relationship manager for Harris Bank in St. Charles, who added business confidence levels are up to where they were in 2008.
“Many companies actually had a pretty decent year in 2010, albeit at a lower revenue level,” Brown said,
As a result, he said, more companies that have done OK in the past two years are beginning to utilize lines of credit more to build up inventories.
“They made it through the storm, and now they’re benefiting in ways that — if you look at the industry as a pie — the size of the pie has shrunk a bit, but their piece of the pie has increased,” Brown said.
One success story through the last years has been through the Small Business Administration’s 504 business loan program, according to David Frank, president of SommerCor 504 in Chicago. The economic stimulus package of 2009 “saved the SBA,” Frank said, as it provided money for purchasing assets like property and equipment to businesses that could not obtain loans. In late 2010, the act was amended to allow loan refinancing, saving more money for small businesses.
“We see the market in a weird, jaded way,” Frank said. “We’ve ticked up steadily as the market worsened.”
As business tax returns improve in 2011, Frank added he foresees continued demand for loans, both through the SBA and traditional financial institutions.
The Daily Herald Business Ledger Newsmakers Forum was sponsored by Harris Bank. Corporate sponsors include American Slide Chart/Perrygraf and Comcast Business Class. Marketing partners were the Lisle and Wheaton chambers of commerce.