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No surprise: credit squeeze hits home

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Archives - November 2008
Saturday, November 01, 2008

STATEWIDE Small businesses throughout Oregon that rely on credit to keep operations going may find unwilling lenders as the economy worsens.

The downturn has Oregon Business Association president Ryan Deckert so concerned for small businesses that he asked state congressional representatives to vote for the federal $700 billion bailout plan in October.

“If we can just get confidence injected back in the system,” he says. Small businesses throughout the state are coping by “hunkering down” he says. Nationwide the Federal Reserve says short-term loans to businesses are down 14% from last year.

The stakes are high for the state’s overall economy. The Oregon Small Business Administration classifies 95%, or 300,000, of the businesses in the state as small.

Bad bets on the construction and real estate industry are on the books of many banks in the state, which has subsequently restricted access to credit. Now banks are scrutinizing everyone  they lend money to, experts say.  “Everyone is looking at their underwriting standards,” says Linda Navarro, president of the Oregon Bankers Association. “Some businesses are having a harder time finding credit.”

That includes banks, too. The downfall of some big banks has hindered the ability of regional community banks such as Medford-based People’s Bank of Commerce to take out short-term loans they then extend to businesses, says spokesman Kenneth Trautman. When small businesses come looking for a loan, “We verify their financial statement a little closer.”

Many banks in the state say they have money to lend, though it’s tougher loan terms like collateral and the number of years in business that may pinch the credit pipeline. Collateral is often the small business owner’s home, but real estate values have dropped so much that may no longer be enough, Trautman says.

The credit climate looks to be discouraging startups, too. Trautman says he used to get at least three new businesses a week looking for credit. Now he’s getting none.

At Hillsboro-based Columbia Community Bank very few, if any, unsecured loans are being given to small businesses, says Rick Roby, a bank executive. No loans are being given out for real estate-related businesses, he says. For existing clients already on the bank’s books, “We are loaning for operating expenses.”

The Oregon SBA for fiscal 2008 has given out 27% fewer loans than in fiscal 2007 (1,575 to 1,143). But the average size of a loan in 2008 increased by 68% from last year ($109,000 to $184,000). This indicates banks are approving somewhat larger loans to more qualified borrowers while avoiding smaller, riskier loans to new businesses, says Harry DeWolf, Oregon SBA director.

“You’ve got to be willing to take reduced earnings to survive another day,” says Trautman.                                               


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