Hopeful signs for new business activity in Vermont
Ben Cohen and Jerry Greenfield's single scoop shop grew into an ice cream empire. Dealer.com went public with a sale of nearly $1 billion in 2013. Coca-Cola now owns $3.2 billion worth of Green Mountain Coffee Roasters -- renamed Keurig Green Mountain.
These darlings of Vermont-style homegrown entrepreneurialism all got their start with the help of small business loans -- capital they may or may not be able to get in the current lending climate.
"No one maybe would make that loan today," said Darcy Carter, district director of the federal Small Business Administration in Vermont. "Who can say if that's the right thing to do or not."
The SBA doesn't loan money directly, but provides guarantees to some business loans through private institutions. The guarantee helps lenders take risks beyond what their loan policies otherwise would permit. SBA works with most national and state-chartered banks and credit unions in the state.
But since the recession started in 2007, there have been far fewer loans for SBA to guarantee. Vermont's volume is down by about a third, Carter estimated.
A common refrain among businesses is that banks simply aren't lending, and Carter agrees that private lenders continue to exercise more caution.
Combined with several other market forces -- including low demand for commercial loans, heightened regulations and diversified revenue sources for banks -- collective risk-aversion has kept commercial lending low.
But Carter is starting to see early signs of change in Vermont, and she's not alone. Small business loans are up slightly at SBA and the Vermont Economic Development Authority, and some private lenders report murmurings of new activity, too.
"The economy isn't ringing any bells," Carter said. "But there are signs that it's getting a little bit better."
David Silverman of Union Bank said late spring has brought encouragement after a long winter of low demand.
"It just seems like there are new projects that are coming out of the woodwork all of a sudden," Silverman said. He estimates a roughly 5 to 10 percent increase in commercial loan inquiries -- though not all have yielded signed deals yet.
"We're talking to more people about more projects, and it feels good," Silverman said. "Banks like to make loans, so when have demand, that's a good thing."
Data from the second quarter of this year won't be available until July, but even first quarter figures reflect some increases in commercial and industrial lending. Volume remains a far cry from prior highs, but according to statistics from the Federal Deposit Insurance Corp., the business activity has been creeping back since mid-2011.
At the end of 2006, Vermont commercial banks in aggregate held nearly $800 million in commercial and industrial loans (not including loans for real estate, farms, individuals or other subsets). By the end of 2009, the figure had plummeted to less than $300 million. With incremental, cyclical gains through the seasons, business loans surpassed $400 million in the first quarter of this year.
Credit union lending is up, as well. National Credit Union Administration data show the value of business loans by Vermont credit unions topped $255 million by the close of 2013 -- more than $42 million higher than two years before.
Still, loans by Vermont chartered commercial banks only total about half what they did before the recession. And anecdotally, it's reported that most of the comeback is concentrated in Chittenden County and the surrounding areas. Reduced lending reflects a weaker economy elsewhere in the state, says Chris D'Elia, president and treasurer of the Vermont Bankers Association.
"As you get further east and further south," D'Elia said, "we just really haven't kick-started it in any way. We're still struggling with recession aspects there."
D'Elia said some federal regulations setting a higher bar are making it harder for banks to lend to sole proprietors and very small businesses. Professional financial statements are required, for example, but some businesses can't afford accountants to prepare the documentation.
D'Elia said he recently heard from one banker who's made several loans to a small logging company over the years - always paid back on time. But on paper, the operation doesn't fit the mold regulators now require. The banker is afraid he won't be able to help the next time the owners need a loan.
And if money doesn't come from traditional sources, Carter observed, business owners may settle for more expensive capital elsewhere. Credit card debt is one option, and she said new, web-based sources are emerging in financial hubs like New York.
The alternatives, however, can be quite pricey and are not subject to the same regulations as banks and credit unions. Carter said she hopes regulatory attention will bring more transparency to their costs and terms.
In the meantime, she'd like to see banks and credit unions - and SBA - deliver capital more quickly to Vermont businesses and startups.
Many recipients may stay small, but hopefully the assistance will help some of the companies grow, she said. And maybe one of them will be the next national success story.
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