Awidely anticipated result of the
nationwide mortgage-related credit
crunch is the tightening of bank credit standards across the board. While the
Federal Reserve has been working to
increase the money supply and ensure its
availability, speculation persists that money
will become harder to get in the form of bank
financing. Will the national credit crunch —
primarily on the consumer side right now —
carry over to Pennsylvania and put a squeeze
on commercial funding, as well?
“Not necessarily,” says Nicholas A.
Garrubba, senior vice president and chief
operating officer of Brentwood Bank. “There
are a number of factors that indicate we may
not be going down that road here in western
Pennsylvania — at least not anytime soon
and not at the community-bank level.”
Smart Business spoke with Garrubba
about what businesses should expect to see
and where they may be able to turn in their
efforts to obtain funding in the near future.
What dynamics make Pennsylvania different
from what’s going on across the country?
In Pennsylvania and the Mid-Atlantic region
in general, we’ve historically been much
more conservative in our approach to lending. That’s been especially true within the
community-banking sector. The upside is
that community banks are a stabilizing force
in the banking industry right now and are a
big reason why we’re not seeing more regional fallout from mortgage loan defaults.
The irony is that there may be less likelihood you’ll get caught in an institutional credit ‘squeeze’ with a community bank because,
for the most part, community banks have a
relatively conservative approach to credit
quality. Equally, if not more, important,
lenders at the community-bank level seem to
have a better grasp of the difference between
a credit ‘risk’ and a business or individual
with unique needs or circumstances. Many
larger financial institutions seem to be challenged when making this distinction.
What happens to these businesses as credit
standards continue to tighten?
We are already starting to see more and
more ‘good credit’ risks getting caught in the institutional credit squeeze. This appears to
be happening with business customers who
have been served by larger national or
regional lenders in the past and who have
discovered there is no continuity of relationship. Instead, it’s become a ‘revolving
door’ with a new bank officer handling each
successive funding request. What compounds the problem is business customers
aren’t dealing with a decision-maker, they’re
dealing with a messenger. The decisions are
being made somewhere else, by someone
who has no knowledge of or interest in the
relationship or the customers’ business circumstances. When credit standards tighten
and a business has something out of the
ordinary that is unique to that business, it
becomes an easy target — these are the first
ones singled out.
What’s the alternative for these businesses?
There are a couple of reasons why community banks are in a better position to
serve the needs of borrowers with good
credit and, particularly, smaller to midsized
businesses in need of commercial financing. First, community banks aren’t the ones
who have to tighten credit standards.
Second, a community bank can maintain a
deeper relationship with its commercial
customers. It can provide direct, one-to-one
contact with decision-makers. It can be
more ‘in touch’ with its business customers’
circumstances. And today, it can anticipate
their ongoing growth needs and take care
of them with a complete range of product
and service offerings — some of which
have only become available within the last
three to five years.
Businesses and commercial loan customers with unique needs or circumstances
— those who are often the first ones caught
in a credit ‘squeeze’ — will find it’s much
easier to obtain custom-tailored loan terms
and other relationship benefits when they
seek out financing from the community
banking sector.
Do community banks have money readily
available to lend?
Yes, absolutely. Many community banks
have the on-site resources and expertise to
support multimillion-dollar lending capabilities — and have the dollar capacities to do
those kinds of deals. Different institutions
have different lending ‘comfort zones’ with
regards to the amount of risk they are willing to tie up in one credit. But, as a rule,
lenders all have the same responsibility —
to put good quality loans on the books.
What’s the rule of thumb that potential commercial borrowers should follow when
approaching a bank for funding?
Don’t assume you need to go through a big
bank if you need a big loan. If you have
unique needs, you’re going to be a lot better
off working directly with decision-makers
who have multimillion-dollar lending knowhow and who are able to get to know you
and your business. As credit standards tighten, the value of the relationship will take on
greater importance — and as it does, you’ll
find the community banker has more and
more to offer.
NICHOLAS A. GARRUBBA is the senior vice president and chief operating officer of Brentwood Bank in Bethel Park, Pa. Reach him
at (412) 409-9000 or [email protected].
