Recovery boosting demand for loans

Low interest rates and bankers who are falling over each other to make loans are enough to convince more northern Nevada business owners that it’s time to borrow money for expansion or new projects.

While market-wide figures on bank lending are difficult to assemble, commercial bankers say their phones started ringing more often within the last couple of months.

The demand for loans cuts across a wide swath, everything from acquisition of multi-family housing projects to working capital to allow expansion of a distribution company, says Rob Humphreys, senior vice president of commercial banking for Umpqua Bank in Reno.

Northern Nevada companies that sell into national and regional markets — which generally are farther along into their recovery — are particularly good candidates for borrowing to finance expansion, he says.

“If it’s just local, they’re still just bumping along,” says Humphreys.

Real estate and construction lending also is stirring to life after a severe five-year slump, says Bob Francl, executive vice president and regional manager for First Independent Bank.

The red-hot market for existing single-family homes in Reno and Sparks is getting residential developers back into the game, Francl says, while demand for multi-family housing in the mining communities of eastern Nevada also is boosting lending activity.

In fact, Reno-based Desert Wind Homes recently received First Independent Bank’s first traditional loan for new home construction since the market collapse. With two developments in the Truckee Meadows, Desert Wind Homes owners Allyson and Victor Rameker received the loan for the construction of new homes in their Sparks community, Sonoma.

First Independent Bank has seen strength, too, in lending to companies in the medical sector that are taking advantage of low interest rates to buy their own facilities.

Still, Francl notes that lending to construction subcontractors remains slow. Many of them were severely hurt during the Great Recession and have struggled to rebuild their balance sheets sufficiently to make them good candidates for new loans.

Real estate investors, both local and from out-of-town, also are beginning to show up in commercial lending offices.

“Anyone with a good tenant is a good prospect,” says Humphreys.

Still, he notes that loan-to-value ratios generally remain conservative, and borrowers will need to put more cash into deals than during the boom that began a decade ago.

And that’s leading many to loans guaranteed by the Small Business Administration, which often provide more attractive terms to business owners who want to own the space that their companies occupy.

Stan Wilmoth, president of Heritage Bank of Nevada, says the wide-ranging growth of loan demand is a strong indication that business owners believe the northern Nevada economy has solidly turned a corner.

“The economy is looking to run,” he says. “We’re seeing a lot of entrepreneurs who are getting more excited about their business.”

Lester Romero, who manages small-business lending for Wells Fargo in northern Nevada, says the substantially better vibe among entrepreneurial borrowers is at least partially a reflection of their improved personal finances.

Because small business owners generally need to provide personal guarantees for the repayment of business loans, the strength of personal balance sheets is a key element in determining whether they’ll be able to get a loan.

The sharp rise in home values in northern Nevada — the median price of an existing single-family home rose by 31 percent during the first quarter compared with a year earlier — is strengthening borrower’s personal balance sheets and boosting their confidence, says Wilmoth.

“We’re not seeing the asset compression that we saw in 2009, 2010 and 2011,” he says.

Loan demand is boosted, too, by loan interest rates and by strong competition among lenders who feel pressure to get loans on their books.

Bankers have noted that many of the loans that made at higher rates three or five years ago now are coming to the end of their terms. Lower rates in the current environment mean that banks need to get more loans on their books simply to keep their interest earnings even.

The fierce competition, Humphreys says, is reflected both in interest rates that are offered as well as the terms of a loan.

That, he says, creates challenges for borrowers who are trying to compare offers from multiple lenders.

“It’s harder to analyze the terms,” he says. “We’re trying to help our customers get their heads around what their options are.”

Wilmoth, meanwhile, says that worries about the effects of the federal Affordable Care Act on small businesses continues to dampen some demand for loans to finance expansion.

“The uncertainty of that is going to plague us through this year,” he says.

For bankers who have spent much of their time in the past four years working out the loans that went sour with the recession, the growth in loan demand is particularly welcome.

“It feels like banking again,” Francl says.