Lenders Juggle Credit and Toxic Waste

ABA Banking Journal, July 1990 | Go to article overview

Lenders Juggle Credit and Toxic Waste


Is there or isn't there a credit crunch? The subject of studies by the Federal Reserve and others, the question can't really be answered simply.

ABA Banking Journal explored this complex matter and other questions about the small business lending environment with a roundtable of small business lenders attending the recent ABA National Small Business Banking Conference. The participants were selected from the members of the ABA Small Business Banking Unit committee and the conference's planning committee. They included:

Frank H. Mynard, chairman of the unit committee and president and CEO, Bank of Northern illinois, N.A., Waukegan. The $130 million-assets bank serves small businesses in Lake County and northern Cook County, Ill.

Harvey A. Mackler, vice-chairman of the unit committee and senior vice-president, United Jersey Bank/Central, Princeton. The $2.5 billion bank serves small businesses in seven counties in central New Jersey. Paul B. Brawner, senior vice-president, The Huntington National Bank, Columbus, Ohio. The $11.6 billion bank serves small businesses throughout the state; Brawner heads the bank's small business lending in Columbus. Philip S. Inglee, president and CEO, Liberty National Bank, Huntington Beach, Calif. The $145 million bank mainly serves northern Orange County. James C. Lund, senior vice-president, National Bank of Alaska, Fairbanks. The $2.1 billion bank serves small businesses throughout Alaska and in some parts of Washington State. Richard Martens, executive vice-president, Security Pacific Bank-California, Los Angeles. The $30 billion bank serves small businesses throughout California. Edited highlights of the discussion, moderated by executive editor Steve Cocheo, are presented here.

Credit Crunch

The term "credit crunch" has been much in the news. Have your institutions been throttling down? Conversely, has the demand for small business credit been rising or falling in your market? Mynard (Northern Ill.); I haven't seen a decrease in credit demand. It's still fairly strong.

We are not throttling down per se. What we are doing is anticipating some sort of economic slowdown in our area. We are taking a look at the risk that is already in our portfolio and deciding how much additional risk we want to take in various types of transactions.

In some cases, there may be deals that we would have taken a year ago that we are not taking today because we feel we already have enough of that type of risk in the portfolio.

An example is the startup situation, one in which there is no proven track record, but where there is an experienced person who wants to branch off and start his or her own business. We might be a little more suspect about that type of loan.

It's also fair to say that we are being more careful about some of our real estate, because real estate is much more sensitive to economic cycles than other types of businesses.

So, to that extent, there is some throttling down. But in general, the good, solid small business deal is getting done. The ones at the extreme of the spectrum may fall off the table. Mackler (UJB): In New Jersey, we're definitely seeing a greater demand for small business financing. I'd like to think it's our calling effort that's produced that.

My institution is doing well, so it's attracting a lot of demand. People see us as able to continue to meet their needs. Our two largest competitors have been experiencing earnings problems and some of their customers have been coming to us.

We're not throttling down, but we're clearly being more prudent. We're more careful on projections. When people say they're going to hit this or that target, we find the numbers just aren't there anymore. We just don't see the economy going the way it was from 1982 to 1988 and maybe into 1989. We think our region has been in a recession for some time.

Real estate in New Jersey is not doing very well. …

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