The pendulum has swung and businesses with a good balance sheet will find credit more readily available today than they would have a few years ago, according to a group of West Michigan bankers.
As the economy has improved and generated higher loan demand and as banks’ own financial positions get better, competition for commercial lending has intensified as well.
That also has led to loan covenants “getting looser” as banks compete for prospective borrowers, said John Porterfield, the regional president in Grand Rapids for Comerica Inc.’s West Michigan market.
“The banks are very hungry,” Porterfield said during a recent panel discussion on the state of credit hosted by the West Michigan chapter of the Turnaround Management Association. “There’s a lot of competition for loans out there.”
That increased competition stems from an economy that’s showing “sustained momentum” and historically low interest rates, combined with banks having money to lend and feeling pressure to grow, Porterfield said.
As a result, loan terms are becoming more favorable for borrowers, said Steve Potter, senior vice president for commercial lending at Independent Bank Corp.
“It’s a good time to be a borrower,” Potter said. “The pendulum has swung toward the borrower right now. We’re in a position where there’s a lot of emphasis by the banks to put capital to work.”
John Pollock, managing director of the private equity firm LV2 Equity Partners LLC, said he’s seen a loosening of loan terms as well, although “they’re not quite as crazy” as they were prior to the recession.
Low interest rates, increased lending competition and improved availability of credit have also affected the private equity market by driving up transaction values, Pollock said. The lower cost and greater availability of credit has made buyers willing to pay more for the businesses they acquire, which has driven multiples back to pre-recession levels, he said.
“It’s an extremely frothy valuation market right now,” Pollock said.
Despite the improvements in credit markets, trouble spots remain, Potter said.
Larger borrowers generally tend to have rebounded from the recession and are now in a position to grow and need credit, he said. If they have a good balance sheet, “they have bankers knocking on their door,” Potter said. “It’s easy to get credit.”
At the lower end of the market for companies with $1 million to $25 million in annual sales, the recovery is in the early stages. Independent Bank still has clients that are struggling and have difficulty accessing credit, Potter said.
“The guys at the lower end are just starting to get there,” he said. “It’s still a challenging credit market.”
Both Porterfield and Potter said their banks are not steering away from any particular industry in the post-recession economy, nor do they see other banks doing it. When reviewing a borrower’s request for credit, their banks tend to look more at the management team behind the business, they said.
“We look at the guys running the business because at the end of the day, they are the guys who are going to pay us back,” Potter said.
Although credit markets are better, there remains lingering caution among businesses following the recent economic turmoil, Potter said. The recession made businesses more conservative and impacted the psyche of executives, he said.
“Our customers are still mutually affected by the Great Recession,” Potter said.