A tug-of-war, with banks in the middle

Brothers Steve and Mike Blazer operated a Front Range electric supply company for 15 years before selling it in 1999. When they decided in January to get back into the business, they needed about $2 million to purchase inventory, a computer system and office furnishings, among other expenses.

Poised to put up real estate holdings as collateral, the Blazers talked with the Springs head of a Midwest-based commercial bank with whom they had a longtime relationship. Then, they approached the Pueblo office of a national bank with whom they also had done business. No deal, both said.

Finally, the frustrated Blazers talked to a smaller, locally based bank, whose owner also knew the Blazers, saw potential in their revived business and agreed to a deal in short order, Steve Blazer said. They received their financing, opened a Pueblo office and warehouse in August, a Springs-area location in September and now employ 34 people.

“The small bank, locally owned, was very willing to take a chance and do something,” Steve Blazer said. “The bigger banks, it was just a complete turnoff. Zero interest.”

The Blazers’ inability to obtain commercial financing from the larger banks and their months of waiting underscore what other business people say they’re seeing every day: A year after the nation’s credit crisis began, it might be easier to rob a bank  than to get some to make timely commercial loans for startups, expansions and new construction, or to extend lines of credit for day-to-day operations.

Banks, meanwhile, complain they’re being squeezed by regulators, who have imposed stricter loan standards and have limited banks’ ability to make money available to certain types of borrowers, such as real estate firms and restaurants, as regulators cope with the highest number of bank failures in 20 years.

The ripple effects extend beyond the business community. A lack of lending limits the ability of businesses to construct and purchase buildings, buy land, hire employees, purchase equipment and contract for services — impeding an economic recovery that’s just getting going, some business people say.

“It’s just a huge snowball effect,” said Dale Stamp, president of Springs brokerage Grubb & Ellis/Quantum Commercial Group. “When there’s less deals done, there’s less tax revenue for the locals, the state and the feds. It goes on and on. There’s just less activity in the market.”

Steve Hammers has been a general contractor and developer in the Springs for 23 years and co-owns Claremont Business Park, an 82-acre light industrial complex at U.S 24 and Marksheffel Road.

His track record, however, meant little this year when he tried to refinance the loan he took out to buy the land and develop the park, Hammers said. Federal regulators told the Denver bank that held the loan to steer clear of more real estate deals, he said. A loan consultant also couldn’t find him a lender, he said.

Finally, Hammers said, his original lender was allowed to approve his refinancing. But a process that takes several weeks dragged out over eight months, Hammers said.

“One hand is trying to stimulate the economy,” Hammers said of the federal government. “The other hand is regulating the banks and asking them to produce more capital, and they’re not letting them soften up some of the lending requirements to help through this time.”

The banks insist it’s not their fault.

Yes, lending by Colorado Springs-area banks has declined since the credit crisis began last fall, as measured by the combined size of loan portfolios held by 10 locally headquartered banks. Those banks represent about 20 percent of the local banking industry. Their combined portfolios have declined in size every quarter since the third quarter of 2008 and are down $4.27 million, or 0.4 percent, during the nine-month period that ended June 30.

That parallels similar declines in loan portfolios at the state and national levels. Portfolios are down from their peaks by 6.2 percent and 4.6 percent, respectively. The statewide numbers show an exaggerated decline because of the failure of Greeley-based New Frontier Bank in April, when federal regulators could find no buyers for the bank’s loans.

But blame falling lending on several things, said Don Childears, president of the Colorado Bankers Association. They include a declining creditworthiness of borrowers, banks tightening credit standards and federal regulators requiring banks to reduce the concentration of commercial real estate lending in their portfolios while also imposing higher capital reserve requirements, he said.

“The problem, as far as lending is concerned, is that Congress, the public and the media have their foot on the gas pedal wanting us to lend more, and the regulators have their foot on the brakes wanting us to be more cautious,” Childears said. “We are caught in the middle.”

The Federal Deposit Insurance Corp. supports what it calls “prudent lending” and says “community banking” is the nation’s lifeblood, said spokesman Greg Hernandez. When it comes to a direct response to critics, Hernandez said such issues are being addressed by regulators and advisers in Washington.

In Colorado, construction and land development lending has been hit the hardest; banks especially don’t want to make loans to residential developers because of the weak demand for new housing. Total outstanding loans for those types of projects as of June 30 were down $3.28 billion, or 18.2 percent, from a year earlier, according to data compiled by the Colorado Bankers Association.

Some retailers without a track record also have had a difficult time, said Mark Useman, a broker with Sierra Commercial Real Estate in Colorado Springs. Startup restaurants, risky in a poor economy, can’t get financing, he said. But chains have had an easier time; doctors and dentists have also been able to get loans, Useman added.

The feds, meanwhile, also are doing fewer deals, and the slowdown has especially hurt small businesses.
The volume of lending guaranteed by the U.S. Small Business Administration in El Paso County fell 13.7 percent to $44.4 million on 111 loans, the lowest number since 2002. SBA loans are made by private lenders and insured by the government. SBA-backed lending has started to rebound in the past six months with average weekly loan volumes up more than 35 percent from the bottom of the market early this year.

Small businesses have also been hit hard because some of the nation’s largest small-business lenders have cut back on loans in the past year. Some specialized lenders that served retailers and restaurants have shut down entirely, further squeezing business credit.

Some businesses, meanwhile, are taking a more cautious approach to taking on additional debt, and loan demand is down sharply this year, said Ed Sauer, president of The Bank at Broadmoor and chairman of the bankers group.

“Businesses are not hiring, reducing personnel and not expanding or increasing inventories, so the number of people coming into our bank requesting credit is down significantly,” Sauer said.

The nation’s largest banks are reporting the same trend. Tom Naughton, who heads U.S. Bank’s operations in the Springs, said the bank’s local loan portfolio has contracted by about 5 percent because borrowers are paying down loans and too few borrowers are taking out new loans.

“We aren’t seeing many new projects to finance and businesses are paying more attention to cash flow and not using debt,” Naughton said. “People say that we are not making loans, but we are open for business and lending. We still have standards we have to meet, however.”

Still, lenders haven’t given up trying to make loans more attractive to business borrowers. The SBA has increased the percentage of any loan it will guarantee and eliminated fees. Wells Fargo has cut some closing costs in half to combat a 3 percent decline in business lending so far this year, according to Jim Harris, senior vice president and regional business banking manager for Wells in southern Colorado.

State government also is trying to loosen up credit for small businesses. The Colorado Housing and Finance Authority last month revived the Colorado Credit Reserve Program to make up to $50 million in loans up to $500,000 available to businesses.