All good points, but at this point in history, pretty much anyone who is going to start a business has the cash or means to the cash to get a bank interested.
No, we get folks in regularly who have a dream but no cash capability to put it in motion, unless you are a "green business" that has Patty and Maria as friends. Look at the "new" business up in Satsop. Another Solindra in the making based on what my clients are saying when it comes to getting paid from them. They have no market for their product, yet Patti & Maria helped get them a nice USDA loan. Go figure, people don't need any new wood if there isn't any building going on.
I wonder about loans on capital improvements for existing businesses? What sectors are showing enough growth that banks would look at a going concern and loan them money to make improvements without the cash backing? Will they? My guess is no, and that is leading to my point which is money is really "cheap" right now, but hard to get unless you can prove you don't need it. Another point is that there is cash out there, but what causes people to move it into an improvement or new venture?
Doing a loan for an HVAC company, a recyclying company, a charter fishing boat, and a few others, all new business. Might be looking at a sporting goods mfg that everybody would recognize if they are an active bow or rifle shooter. Profitabilty helps, as does retained earnings, solid net worth, and assets worth something. Got this? I'll lend to you. I'll also have you sign a personal guarantee, Corp or no Corp.
Bernanke has promised to keep the IR at 0% for another long while. I can't see how this helps smaller regional banks, why would anyone want to make a deposit or pay off a note at those rates?
If the choice is to earn 0.75% on a 12 month CD orpay 6% on a loan, many folks will choose to save money and pay down debt. Doing so they would have just made a return of 5.25%. We caution them to retain some cash, and not to liquidate all debt. Reduce debt that gives you the most cash flow back in the form of cancelled payments, short term debt.
What does the fed rate do to these smaller banks? The way I see it is with reduced deposits, there is no reason for the bank to make more aggressive loans as there is a ratio that they need to keep for reserves/long term loans. I am sure there are huge holes in my logic, I just have been pondering this stuff today.
The Fed sets the rate which is the cost of borrowing money overnight, or conversely, investing money overnight, minus a spread. We have seen the opposite in the direction of deposits, they grew as people migrated out of large institutions. It continued to grow as various businesses prosperred, somewhat. We have roughly $86 million in excess deposits as of 9-30-11. We're getting didly squat on that, so that is an incentive to put that to work. We would rather be earning 5.5-7.5% in a commercial loan than getting 0.01% at the Fed. Our loan to deposit ratio is about 86% now. We have been as high as 104-105% (we can leverage our investments, gov securities & muni's, or pledge govt guaranteed loans so we can loan more). We want to put that money to work, and we are seeing sectors improve. All is not gone to hell.
Hope this banker's perspective helps shed some light.
Nice replies. I agree about the paper tiger up on the hill in SDP. The green pork Patty brought home has funded a small amount of work for me. Now most of those projects are defunct (when companies realized that they were going to put into motion an unsustainable business) but my name is in the public record for some of them and I still get the weekly calls from vendors and contractors asking about when they will start up.
Regarding the loans you are currently working on, they point a bit to what I see. Service industries are doing okay, HVAC, mechanics, plumbers, etc. Are these the sectors improving on your end of business loans?
It is good to hear that the deposits have gone up. That bodes well for the recovery as the smaller banks have the capacity to move money quickly as firms begin to show profits and can look to expand. I understand that you are actively looking to put the money to work, is there a point that the deposits get so high to force bank policy changes as to individual parameters for a loan?
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