Banks’ symbiotic relationship with their borrowers will be similar to 2012 but continue to grow in 2013, with banks hungry to lend and companies still cautious about investing.
“Banks need to grow assets (loans) to enable them to make money,” Steve Sefton, president and CEO at Regents Bank, said in an email. “So the lending environment is very strong for qualified borrowers. Qualified borrowers will enjoy one of the best lending environments we’ve had in a very long time. Rates are low, and competition among banks will likely yield some very good loan terms for those qualified borrowers.”
Steve Bernstein, senior vice president at Wells Fargo (NYSE: WFC), said he expects 2013 to be better than 2012 in terms of lending.
“The economy is not growing as fast as everyone would want it to be. We’re seeing some improvement and expecting 2013 to build on the foundation built in 2012,” Bernstein said.
Alan Gin, economics professor at the University of San Diego, said he thinks the lending environment will improve in 2013, but that lenders will continue to be cautious.
“I expect the economy to be better this year than last, which will lead companies to want to borrow more money, particularly with interest rates so low,” Gin said in an email. “Lenders will be more accommodating in terms of loans, but standards will still be much higher than in the boom years of the mid-2000s.”
In the fiscal year 2012, Wells Fargo financed $49.2 million through 94 SBA loans. The prior year, it financed $53.7 million through 108 SBA loans. And in 2010, Wells Fargo financed $20.8 million through 56 SBA loans.
Bernstein said Wells Fargo’s credit standards have remained consistent and it is “looking to lend as much money we possibly can to every credit-worthy borrower.” Wells Fargo launched its Business Insight Resource Center in 2010 to offer business owners online financial education. In 2013, Wells Fargo will add a Business Credit Center for business owners to learn the basics of credit and developing a credit application.
“Those seeking construction and development loans may find borrowing more of a challenge. But a properly underwritten development loan with sufficient down payment, pre-leased tenants, adequate debt service capacity and a principal/guarantor with sufficient personal liquidity and not excessively leveraged will be able to find a loan in any market,” Sefton said.
Lending more money positively impacts the economy by helping small businesses grow and creating more jobs, Bernstein said.
“I think a lot of business owners learned a lot through the downturn and became better business owners. They became more efficient, they understood more and utilized resources,” Bernstein said. “In the previous years, I wouldn’t say people weren’t making sound business decisions, but the decisions were more loose. People have redefined and retooled. The educational piece was significant during 2009 to 2010.”
Growth has returned — at a slow rate — since the recession, Sefton said, and companies are still cautious about investing and growing a business.
“So yes, companies are looking to borrow, but not at a volume sufficient enough to satisfy the supply of all the banks and bankers out there that want to make them a loan,” Sefton said. “Yes, qualified borrowers should be able to find many sources for a bank loan. Banks will be lined up at their door to make loans. So yes, the supply of money is very much available for qualified borrowers to get loans.”
Bernstein said the business owners he sees are optimistic for 2013 and are working toward growth. He said they’re buying out other practices and making transitions as the local economy continues to see positive trends.
“As consumer confidence grows and unemployment continues to drop, people will be more encouraged to borrow money to grow their businesses and pursue new ventures,” Sefton said. “While the money availability side of the equation is already strong, it’s the demand for loans that has room to grow in 2013 — and hopefully will.”
Interest rates are expected to remain low through 2014, Sefton said, and Bernstein said business owners are looking to take advantage of the historical lows.
“While banks will see margins increase with higher interest rates, it could dampen the appetites of borrowers, so it’s a balancing act that no one can predict,” Sefton said. “The best-case scenario is that we can slowly and steadily get back to an economy and interest rates more like those of the pre-recession years, but without the systematic pitfalls that led to the downturn. However, all bets are off if the Fed stops printing money and ceases buying U.S. treasuries. If that happens, short-term rates will spike.”