Lenders woo LI's small and medium-sized business borrowers

Ray MacAlpine, owner of Mac-Lad Corp., a distributor Ray MacAlpine, owner of Mac-Lad Corp., a distributor of building materials, at the company's Calverton warehouse on July 15, 2014. Photo Credit: Newsday / John Paraskevas

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Loans to small and medium-sized businesses on Long Island, which were hard to come by in the financial crisis and ensuing recession, are on the rebound.

Bethpage Federal Credit Union has added 400 business deposit and loan accounts since launching a new commercial banking division in March, making $13 million in loans, said chief executive Kirk Kordeleski.

Lake Success-based Astoria Bank has boosted its business banking operation from seven people to 40 and made $100 million in new business loans in the New York area since 2012, said president and chief executive Monte Redman.

Other local banks that are ramping up efforts to lend to businesses include New York Community Bancorp, the Island's largest bank, Suffolk County National Bank and Flushing Bank.

Bankers say they are lending more because both banks and local businesses are healthier. "I think, overall, it's much easier to get financing today," said Redman. "The banking industry is strong and the local businesses are stronger. We think it's a very good market." In addition, from years of dialing back on lending after the 2007 and 2008 financial crisis and the recession that stalled business expansions, many lenders are sitting on large hoards of cash that they want to put to work, making profits on loans.

"Your loan portfolio is probably going to give you one of your better returns," said Dennis Jurs, an executive vice president and chief lending officer at a unit of New York Community Bank, based in Westbury.

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COMPETING FOR CLIENTS

Local lenders seeking more business clients have to compete with some of the banking industry's giants. In May, San Francisco-based Wells Fargo set a goal of extending $100 billion in new lending to small businesses nationwide by 2018. That same month, Charlotte, North Carolina-based Bank of America said it had issued $815 million in new loans to businesses in New York State last year, a 50 percent increase over a year earlier.

Growing competition to lend money to businesses benefited Mac-Lad Corp., a 28-year-old building materials distributor that employs about 30 in Calverton. Ray MacAlpine, owner of Mac-Lad, said he left Capital One as a client in April after 30 years to open a $2.5 million line of credit at Bethpage Federal. He uses the line to pay vendors while he awaits payment from customers.

"I got a larger line of credit and a better rate of interest," MacAlpine said. He said he was pursued also by Bank of America, Astoria, Chase, Suffolk County National Bank and Bridgehampton National.

Long Island has about 95,000 businesses, most of them small and most of them privately held, according to U.S. Census data. One of the primary concerns of the small and midsized businesses that are the backbone of the Island's economy is access to credit.

To be sure, it's never a slam-dunk to get a loan approved. "Not having access to credit for a small business can make or break it," said Kevin Law, president and chief executive of the Long Island Association, the region's largest business group.

LOANS' ESSENTIAL ROLE

Loans allow businesses to expand and hire. Businesses also need to borrow to introduce new products and services, said Irwin Kellner of Port Washington, chief economist for MarketWatch.com, a financial-information website.

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One of the 86-branch Astoria Bank's newest clients is Corporate Coffee Systems of Westbury, which delivers refreshments, snacks and office supplies to companies in the region.

President David Henchel and executive vice president Donn Luti said they decided it was time to re-evaluate -- to find a lender that met the company's needs and was available as a resource and advocate. "There isn't the red tape, we have a direct line to the bank," Henchel said of Astoria.

Long Island's largest lender, the 270-branch New York Community Bank, last year created a subsidiary, NYCB Specialty Finance Company, Inc., in Foxboro, Massachusetts, for loans mostly to large corporate borrowers. At the end of last year, New York Community had a total of $813.7 million in commercial and industrial loans in its portfolio -- up 38 percent from a year earlier.

The 25-branch Suffolk County National Bank, a unit of Suffolk Bancorp, says it increased its loan-making capacity for small to midsize businesses, adding technology and support staff to streamline the process. Its latest figures show it had $171.2 million in commercial and industrial loans at the end of December 2013, up 1.5 percent from $168.7 million a year earlier.

The 17-branch Flushing Bank, part of Flushing Financial Corp., formed a business banking unit in 2006 and says in its latest annual report that, as of December 31, 2013, the business unit had $378.3 million in loans and $138.5 million in deposits, up from $293.9 million and $78.5 million, respectively, the year before.

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Despite these expansions, not every business that seeks money gets a loan. Redman said common reasons that businesses are turned down include insufficient cash flow, collateral issues and the soundness of their expansion plans.

A Bethpage Federal-sponsored survey of about 600 small Long Island businesses in December found 16 percent said they were unable to borrow sufficient funds to meet their needs.

The 28-branch Bethpage's Kordeleski said that percentage is relatively low and that it's simply unrealistic to expect it to drop to zero. "That can go down a few percent," he said, "but not everyone is going to be eligible for credit."

THE PROMISE OF GROWTH

There could be some room for lending to grow further. Kellner thinks many bankers still fear a repeat of 2008 and 2009 when lenders were buried in bad loans and that some are gun-shy now in the face of intensified federal oversight of lending criteria and practices that followed the meltdown. "I think they are more afraid of their regulators than they need to be," he said.

Even now, some businesses say lenders are too strict.

Montauk-based Dock to Dish, a members-only supplier of fresh seafood to restaurants and consumers, hasn't applied to local lenders, said fisherman Sean Barrett, its co-founder, but it has sought about $500,000 in new financing from major banks with which it has dealt -- to expand the business, including establishing a distribution point in Manhattan and purchase of a new refrigerated truck and permits.

The privately held company, specializing in quick delivery of fresh fish, is at break-even after two years of operation, said Barrett, and his personal credit score is good. Dock to Dish specializes in fish the federal government rates as abundant and sustainable.

He says that, so far, the financing he's been offered is inadequate and at high interest rates. "Because we're sustainable, we're innovative and we're new, there's no track record for this kind of business, so we have an extra barrier to get through," Barrett said.

SOME GET CREATIVE

Frank Knapp Jr., who co-chairs the American Sustainable Business Council's action fund and also is president and chief executive of the South Carolina Small Business Chamber of Commerce, said the newest and least established businesses may need to seek out new avenues for business credit.

One example is crowdfunding -- raising small amounts of money from a large number of people, typically via the Internet. The Jumpstart Our Business Startups (JOBS) Act of 2012 was designed to encourage crowdfunding by relaxing some federal securities requirements, but the program is stalled awaiting issuance by the SEC of regulations implementing it.

A survey of more than 100 businesses released in June by financial consultants Greenwich Associates of Stamford, Connecticut, found that about a quarter who had obtained credit over the previous 18 months did so from non-bank sources. A report on the survey said, "Roughly a third of companies that obtained credit from non-banks said they did so at least in part because their traditional banks refused to lend."

Non-banks include companies such as National Business Capital Inc. of Bohemia, a privately held firm formed in 2009 that makes and brokers loans to businesses locally and elsewhere in the country, at rates generally higher than banks', said finance manager Joseph Camberato.

The company declines to disclose total assets. Camberato said its interest rates begin at about 9 percent.

Camberato said the idea for the company was sparked by tight credit that accompanied the financial meltdown. "The problem is that when a business owner gets turned down by their bank, they really don't know where to turn," he said. "We help fill that void. Sometimes they have a great business but its something the bank doesn't have the appetite for."

An earlier version of this story contained an incorrect number of branches for Astoria Federal.

 

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