Credit crisis a mixed bag locally

TAMPA, Fla. – Oct. 3, 2008 – The talking heads on cable news are saying that credit has all but dried up and businesses can’t get financing for operations or expansion.

But some local bankers insist they have money to loan and have barely slowed down.

So what gives?

Interviews with local businesspeople and data from the federal government and economists suggest that credit has gotten considerably tighter in the Bay area, especially for real estate-related businesses and restaurant franchisees.

Although major banks have cut back, some small ones say they have been relatively untouched by the mess on Wall Street.

And alternative finance companies – including an obscure industry called “factoring” – are preparing for a crush of new business as traditional financing gets harder to obtain.

“This hysteria does not affect all banks or even most banks,” said Monty Weigel, president of NorthStar Bank, a small start-up in Tampa. “There is a lot of liquidity out there.”

NorthStar is making loans, but is spending more time checking potential loan customers’ backgrounds, Weigel said. For example, he said a customer’s primary business may be solid, but the bank might look to see whether that person had guaranteed a lot of real estate loans, such as loans on vacant land.

Local signs that credit is tighter include:

• Fewer government-backed loans. The Small Business Administration guarantees loans that private banks make to small businesses, but these loans are drying up as banks withhold money.

Through August, 479 businesses in Hillsborough, Pinellas and Pasco counties received SBA-backed loans, compared with 667 loans during the same period last year, a drop of 28 percent. The combined value of those loans fell only slightly, however, to $156.7 million this year from $158.8 million last year.

The biggest lenders are cutting back the most. In the SBA’s southern Florida region, which includes the Tampa Bay area, Bank of America made 565 small-business loans worth $22 million through August. That’s down from 1,594 loans worth $52 million in the same period last year.

• Less home equity. Many small businesspeople tapped their booming home equity in recent years to fund businesses. But home equity loans and lines of credit have dwindled along with housing values.

Moody’s Economy.com tracks the amount of money that homeowners take out of their home through loans and credit lines. Home equity extractions in the Tampa Bay area peaked in December 2006, when they made up 13.5 percent of the borrowers’ disposable income. By June of this year, homeowners were pulling less than 2 percent of their disposable income from their homes, Economy.com data show.

Effects vary by company

How bad is small business finance locally? It depends on who you ask.

Penny Hulbert, president of Links Financial, a business financial consulting firm, sees some banks pulling out of entire lines of business, such as residential real estate lending. Some businesses are losing credit lines.

“In the past, maybe in the frenzy, Grades A, B, C and even some D companies were getting funding,” Hulbert said. “Now, only A-grade companies are getting funding.

“I’m so upbeat normally,” she added. “I wish I had better news for you.”

However, local business consultant Gordon Tunstall of Tunstall Consulting in Tampa said he sees banks lending locally. Financing is only a big problem for businesses seeking massive amounts of money, say $1 billion, because any bank with the ability to make such a loan is probably tied up in the Wall Street credit crisis, he said.

Restaurateur Mitch Walker had “zero luck” getting a loan from BB&T, Wachovia, Fifth Third or Regions banks for his first Cosi franchise in the Bay area, a chain of gourmet sandwich, soup and salad restaurants. His first Cosi will open at the new Shops at Wiregrass in Pasco County this month. He landed half of his funding through a finance company in New Jersey that finances franchisees.

“It’s hard for restaurants to get bank financing generally, but it’s getting exacerbated in the last 60 days,” said Walker, who also owns the Bennigan’s restaurant in Tampa’s Channelside Bay Plaza.

Turning to factoring industry

For now, some small businesses are turning to bank alternatives. Hulbert said. An example is the factoring industry. In a factoring deal, a business seeking funding agrees to sign over future revenue in exchange for money today. For example, if a company has a big payday of $100,000 coming, it might turn over its incoming money – its invoices – in return for a lesser amount now.

Kevin Gowen, president of Celebration-based AmeriFactors, said his company usually charges a fee of 2 percent to 3 percent of the customers’ invoice amount. So, of that $100,000 payday, the customer might receive $97,000 and AmeriFactors would get $3,000, Gowen said.

Factoring can be a good option when a business needs money immediately, but it’s more expensive than bank loans, said both Hulbert and Jim Parrish, a counselor with the USF Small Business Development Center. Factoring companies usually get their money back quickly – often in 60 days or less – so seemingly small 2 or 3 percent returns are quite large on an annualized basis.

Given the credit crisis, Gowen is expecting the industry to be busy.

“People that I speak to in the factoring industry, they’re all having a big increase in applications,” he said. “It doesn’t mean they’re going to fund everyone.”