Area sees slight increase in small-business loans

National Penn Bank recently hired a dozen lenders to get back on a small-business loans growth track.
National Penn Bank recently hired a dozen lenders to get back on a small-business loans growth track.
Posted: March 07, 2011

Lending to small businesses by banks based in the Philadelphia area had a slight uptick at the end of last year, after declining steadily since 2009 and despite some of the biggest local lenders still scaling back.

The aggregate value of business loans between $250,000 and $1 million held by 90 local banks climbed 1 percent during the fourth quarter, to $1.70 billion on Dec. 31 from $1.68 billion on Sept. 30, according to an Inquirer analysis of FDIC data.

The small gain in loans used by thousands of area small businesses to buy equipment and pay bills before customers pay them came after a 21 percent decline from a peak of $2.17 billion on June 30, 2009, the data show. Lack of demand caused much of that decline, but some banks were also cutting off credit to customers.

The turn in the lending trend is good news for business owners, though probably not for those that remain cash-strapped and struggling, because even the most active banks are still being choosy about picking up customers.

Fox Chase Bank, for example, looked at $750 million in commercial loan requests last year to make $152 million in loans, which was less than the Hatboro bank's target, said president and chief executive officer Thomas Petro.

"In my experience - this is my 30th year in banking - that's an unprecedented level of work" to make that level of loans, Petro said. "It's testament to the continued weakness in the business climate in this region."

However, Petro said, many of the companies whose loan requests were rejected are getting themselves in better financial shape. "We would consider going back to those businesses," he said.

A Bucks County manufacturing executive said banks and borrowers are both in tough spots.

"If you can't work with your existing bank and you need to change, you are going to have a hard time," said Tom Lawton, president of Advent Design in Bristol.

"I don't blame it on the banks, at least not our regional banks, because it's not that they don't want to lend. Their criteria are not being met," said Lawton, who banks with Univest, of Souderton.

A second type of small-business loan tracked by the FDIC, those with a balance of between $250,000 and $1 million and secured by real estate that is not a residence or a farm, remained virtually flat in the fourth quarter at $4.29 million. From their peak in June 2009, such loans are down 6 percent.

The data used for this article do not include most of the biggest banks that do business here, such as Wells Fargo, TD, and PNC, because the FDIC loan data are not broken out by region.

Citizens Bank of Pennsylvania's loans are included because it reports independently to the FDIC even though it is a subsidiary of Citizens Financial Group.

Citizens Bank's balance of commercial loans secured by real estate and with balances between $250,000 and $1 million fell 27 percent to $320.5 million from a peak of $439.6 million in June 2008, according to the FDIC data.

Daniel K. Fitzpatrick, Citizens Bank president, said that the bank had increased its market share among companies with more than $25 million in annual sales and that in the last six months it had hired six additional lenders in eastern Pennsylvania and New Jersey for businesses with between $5 million and $25 million in sales.

National Penn Bank, another lender with a steep decline in small-business loans, recently hired a dozen lenders to get back on a growth track, CEO Scott Fainor said.

National Penn's small-business loans secured by real estate peaked at $734 million and were down 36 percent to $470 million on Dec. 31. "We were so focused on reducing problem assets," Fainor said.

Executives at small, relatively new banks, such as Valley Green Bank in Philadelphia, said they were gaining business because of such issues at larger competitors.

"We're seeing that a lot of the larger banks, because of capital issues, have elected not to renew existing working capital lines of credit," said Valley Green CEO Jay Goldstein. "These are quality businesses, and the refusal has nothing to do with the borrower and everything to do with the financial institutions," Goldstein said.

The biggest percentage gainer in small-business lending since June 2009, when bigger banks went into retreat, is Harleysville Savings Bank, which started commercial lending in 2006. Harleysville Savings' book of commercial loans secured by real estate has tripled to $20.2 million from $6.7 million.

"We've benefited from the First Niagara name going up across the street," said Harleysville's chief financial officer Brendan McGill, referring to the acquisition of hometown competitor Harleysville National Bank & Trust Co. by First Niagara Financial Group, of Buffalo.

A First Niagara spokeswoman said the bank is doing well in Harleysville National's market. "Total loan originations and line of credit advances increased 34 percent last year" in eastern Pennsylvania, Leslie Garrity said.

Chris Schalleur, founder of Christo IT Services in Harleysville, said he knew of two clients who switched from First Niagara because the transition did not go well, though he did not know where they bank now.

Where does Christo IT Services bank? It uses MileStone Bank in Doylestown because MileStone came through with a loan for an acquisition during the financial crisis. "We were at the 11th hour, the deal was going to fall through," Schalleur said.


Contact staff writer Harold Brubaker at 215-854-4651 or hbrubaker@phillynews.com.

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