GARY MAGNUSON
‘A lot of changes’
Many banks expect to increase lending to mid-market businesses by at least 10 percent over the next year, according to a recent national survey. In Massachusetts, many of the banks lending to mid-market companies are also expecting an increase in business of about 10 percent.
The American Bankers Association and CapitalStream, a Seattle-based firm that provides software and consulting services for commercial banks, conducted a survey with more than 100 bank executives between March and May of this year. The findings of the survey state that 80 percent of banks involved expect mid-market business lending to increase.
“The economic environment is prime for increased commercial lending activity and the mid-market is one of the fastest-growing segments of the revived commercial lending market,” said James Chessen, ABA’s chief economist. “Banks are looking for efficient ways to serve customers.”
In the survey, mid-market businesses were defined as businesses that generate sales between $5 million and $75 million or have credit limits between $500,000 and $15 million.
In Massachusetts, banks already are seeing a modest increase in commercial banking activity and expect it to continue. However, the bankers cite different reasons for the changing environment.
Mark Crandall, executive vice president of commercial banking at Banknorth Massachusetts, said he expects an increase of between 10 percent and 20 percent over the next year in mid-market business lending in the Bay State.
Crandall said he has seen an increase in capital spending recently. Banknorth offers seasonal and revolving lines of credit, as well as term loans and commercial mortgages.
Citizens Bank of Massachusetts, which participated in the ABA and CapitalStream survey and has about 50 percent of its business in mid-market companies, has had similar activity in the mid-market business arena.
“Our mid-market [business] lending has grown in excess of 10 percent,” said Gary Magnuson, senior vice president and group executive of commercial banking at Citizens.
The growth is expected to continue over the next 12 months, but Magnuson points out the increase does not signal a boom in commercial lending.
“It has improved,” said Magnuson. “But it’s not booming.”
Citizens offers various term loans and revolving lines of credit to mid-market businesses.
Loan demand has increased, according to Magnuson, as companies begin to expand and buy equipment.
“2004 saw loan demand coming back,” said Magnuson.
Natick-based Middlesex Savings Bank also has seen growth over the past few years and expects it to continue next year.
“It’s growing quite nicely,” said David Falwell, executive vice president and senior loan officer at Middlesex Savings.
Falwell said he also expects lending to increase in excess of 10 percent for the upcoming year. Middlesex Savings, like Citizens and Banknorth, offer various commercial mortgages, term loans and lines of credit.
‘Spotty’ Expansion
According to Crandall, there has been more activity from existing commercial customers recently. He said while the usage of credit lines has been low in the past, revenues have picked up for many business owners and more companies are borrowing.
Most commercial lenders say as the economy gradually improves, more growth in the commercial lending market is expected.
Magnuson also attributes the increased business to the evolving banking environment and changing market dynamics in the Bay State.
“There have been a lot of changes in the banking industry in New England,” said Magnuson, referring to the number of bank acquisitions in recent years.
Falwell says commercial lending has increased at Middlesex Savings because the bank has been conscious of building a strong Commercial Banking Department.
“We’re gaining market share,” said Falwell. “We’ve invested in building a large commercial banking capability.”
The bank, Falwell said, spends a lot of time locating businesses that need commercial banking.
“We go out and seek opportunities,” said Falwell.
Falwell said he doesn’t think the economy is a strong factor for the growth of commercial lending.
“In the last six to nine months, there has been a modest improvement in prospects and people’s expectations,” said Falwell.
The survey also found that many banks expect moderate to strong growth in loan origination over the next year. The majority of growth is expected from commercial real estate, lines of credit and term loans.
“There’s certainly a need for working capital support,” said Falwell. “That’s what businesses rely on.”
Many of the businesses to which Middlesex Savings lends already own real estate, but Falwell said companies are beginning to look for more space– for example, manufacturing or distribution space.
As businesses begin to borrow more steadily again, banks are not seeing an influx of any specific type of borrowing. Magnuson said both construction loans and lines of credit are being requested at the same rate.
Crandall also said borrowing has been a mix of credit lines and real estate loans, adding that cash management has been a critical part of commercial lending.
“[Business owners] are looking for convenience and ease of banking,” Crandall said.
As banks compete for the mid-market business in Massachusetts, they are finding a few difficulties.
“The challenge is that economic expansion is spotty,” said Magnuson.
Middlesex Savings has found that keeping continuous growth in its portfolio and maintaining asset quality takes work.
“The challenge is to continue to find good companies that are withstanding the difficulties in the economy,” Falwell said.
Competition with other lenders also is a challenge.
Magnuson said the competition differs, depending on the loan amount. For a loan between $50 million to $100 million, larger banks tend to compete with each other. For the smaller dollar amounts, banks compete with both each other and non-bank commercial lenders.
Non-bank lenders also are trying to find their niche in the commercial lending market, according to Scott Rielly, sales director for New England at Milford-based Silver Hill Financial.
Silver Hill offers smaller commercial loans, such as $100,000 to $1 million, which hold less interest for banks, Rielly said.
Rielly added that business owners are watching national events, which can trigger how the economy reacts.
“One question mark is the [presidential] election,” said Rielly. “[But] things look bright.”
Jennifer Jope may be reached at jjope@thewarrengroup.com.
