Commercial loans remain strong despite various headwinds


gith all that has happened over the past 20 months, Krista Flynn considers the current credit environment a pleasant surprise.

While year-over-year net growth remains stable or low for many lenders as Federal Paycheck Protection Program loans are canceled and customers pay off debts and deploy cash, Flynn and d Other bankers describe a western Michigan market in which commercial loan origination was significant in the second half of 2021.

A growing economy and the ability of businesses to adapt to the circumstances of an ongoing pandemic have spurred commercial loan arrangements, especially for expansions and capital purchases, according to lenders.

“Pipelines are tough. The loans have been strong for good investment reasons, and the commercial space is building more confidence than I expected at this point, ”said Flynn, the Huntington Bank regional president who oversees a market that spans the Indiana state border north to Ludington and east to Ionia.

“COVID lasts much longer than everyone thought, we all need to readjust and think about our businesses differently. We have supply issues and chip shortages and that sort of thing, but companies are doing and doing pretty well, ”she said. “I just thought the uncertainty of COVID, the headwinds of labor shortages, people not getting the labor force they want and supply issues would impact a lot. most important. But people find a way. I think one thing COVID has taught is innovation – find out. “

Commercial lenders typically find that businesses with strong balance sheets use more cash as well as credit to make necessary equipment purchases or pay for expansions.

Not borrowing so much when they need credit for expansion or a capital purchase reduces their leverage, putting them in a better position when the economy slows down.

“Some people put more money aside and borrow less. Some borrow, but accumulate the money knowing, “Well, I can pay it off later if I don’t need it,” said Rick Dyer, president of the community of St. Joseph. United Federal Credit Union who runs commercial loans in southwest Michigan and northern Indiana. “Either way, I think it gives them a bit more comfort. “

Dyer reports “fairly strong” commercial loan origins and a “strong” pipeline for United Federal Credit Union, which operates in seven states and had nearly $ 350 million in total commercial loans at the end of the third quarter.

More companies are now considering refinancing existing debt as interest rates remain low in anticipation of an increase in 2022.

“Borrowers are very interested in rate foreclosure in this environment,” said Merchant bank Director of Loans Mark Augustyn.

Steve Owens, Director of Loans at Kalamazoo Consumer Credit Union, describes cases where customers who are three or four years away from a five-year flexible rate business loan now want to refinance for an additional five years to lock in today’s low interest rates.

“We’ve had this conversation more often lately,” he said. “It is mutually beneficial for us to offer them a favorable rate. “

Consumers Credit Union’s commercial loan origination is “at an all time high” and is expected to reach $ 65 million in 2021, Owens said.

Commercial investments

Commercial borrowers from Consumers Credit Union – who had $ 170.1 million in total commercial loans at the end of the third quarter – have applied for credit to fund expansions and support growth, Owens said.

“We are lending to new projects in many industries and businesses that have found a way to grow and thrive in this environment,” said Owens, who cites residential real estate development as an area of ​​strength right now.

Additionally, customers are racking up inventory due to supply chain bottlenecks, according to lenders.

“We see a lot of companies where they try to overshoot by stocking more than they normally would to have a bigger cushion to compensate for supply chain disruptions,” said Joel Rahn, vice-president. Executive Chairman of Commercial Loans in Grand Rapids. based Independent Bank Corp.

This is leading to greater use of operating lines of credit by Independent Bank’s business customers, Rahn said.

Usage of operating lines of credit, which normally runs at around 50%, hit an all-time low of around 27% in the fourth quarter of 2020, Rahn said. That rate since mid-2021 has dropped to around 37%, he said.

“It’s just common sense. When stimulus dollars poured into local businesses, they didn’t need to borrow so much on their lines of credit. Now we are starting to see this trend reversed, ”Rahn said. “It’s starting to return to the historical average, but we’re still not there. “

Another recent driver of commercial lending has been companies investing in automation and robotic equipment, a growing trend in recent years that has accelerated with the tight labor market.

United Federal Credit Union’s Dyer cited a client who recently installed a robotic paint line run by someone who now does the job that previously took five. Some companies “invest in technology rather than people because of the challenges,” he said.

“All companies are on the path to how they can become more efficient and effective at what they do, and how can they produce more with less? Robotic equipment is one of the answers to that question, ”Dyer said. “You add to that some of the workforce issues or challenges over the last year, and we see a lot of companies that have probably been on the sidelines for about a year, not knowing exactly what. that was going to happen now, saying, “It’s time to move on. Let’s go with the robotic equipment. ‘”

Companies looking to grow through an acquisition have also contributed to the business lending business. At Mercantile Bank, M&A activity “has been high,” Augustyn said.

“There are a lot of people who have a lot of cash and would like to do something,” he said. “There are a lot of people looking to acquire a business, and we’ve been very active in this area. Some customers have sold, but more customers have bought, and that has kept us busy. “

Grand Rapids-based Mercantile Bank increased its basic net commercial lending by $ 162 million in the third quarter, for an annualized rate of 25%. In the first nine months of the year, the bank’s commercial loans increased by $ 298 million, or at an annualized rate of about 16% for the year.

On a conference call in October, bank chairman Ray Reitsma told investors that much of the growth came from new customers and that Mercantile Bank had a “very strong” order book for the current fourth quarter. .


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