Banking on business — Loan volume solid but won't deter real estate slide

Scott and Angie West bought Rocks Lodge, on Idaho 21 between Boise and Idaho City, in 1992.

They recently launched the Rocks Natural Idaho Spring Water bottling company after more than a year of research. They expanded the bottling company – for which they financed some equipment – into space that housed a restaurant and tavern on the site until last March.
The Wests did business with two leasing companies and were approved by a third – whose difficult terms they rejected, Scott West said. They entered five-year, fixed-purchase-option leases, at the end of which they are to pay a dollar and own equipment.
“I don’t know if we would be able to get financing if we were a straight startup with no business history,” he said. “Our feeling was that they went through a fairly lengthy and detailed background check on us and our business.”
But earlier, a vice president with a bank in Boise contacted the Wests “out of the blue,” Scott West said. The banker “thought it had a lot of potential and wanted to show what they could offer.”
The subprime mortgage disarray hasn’t crimped the loan pipeline completely as banks continue to make business operating loans and to finance a fair number of owner-occupied buildings.
“We’re still open for business. We’re actively seeking loans,” said Wayne Schneider, Boise-based Wells Fargo senior vice president and director of private banking. The bank remains roughly evenly distributed in its portfolio of business operating lines, U.S. Small Business Administration-backed loans, and loans for owner-occupied commercial real estate, he said.
“We’ve always taken a quality underwriting approach to our credit facilities, and that has proven to serve us well. Consequently, we haven’t had to change our underwriting on the majority of our business loans,” he said. The borrower’s exposure to real estate or another sluggish segment will be considered in the underwriting process, as well as the borrower’s plan to manage this exposure, he said.
“We continue to see opportunities and we really just continue to focus on (borrower) quality,” Schneider said. “We really haven’t slowed down as far as commercial lending is concerned.”
Wells Fargo focuses on established businesses, “although we certainly do look at new businesses as well,” he said.
Marketing communications firm Drake Cooper last December purchased a downtown Boise building, on South Eighth Street. The firm essentially self-financed the purchase, via a limited-liability company.
“We did not go out for financing at the time. The market was just too volatile,” CEO Jamie Cooper said. The building includes Drake Cooper’s space, plus lease space that is full.
Owners later sought bank financing and found a more favorable environment, he said. According to one banker, he said, the owner-occupant element is critical and is a major benefit.
Demand and volume remain steady for owner-occupied commercial real estate loans, said Margaret Sato, vice president and commercial loan officer with Banner Bank’s Boise Commercial Banking Center. New-construction loan requests for office investment properties have decreased due to increasing vacancies, she said.
Banner Bank recently expanded its QuickStep family of lending products for the small business customer. QuickStep features several types of business loans and lines, and a real estate lending product for owner-occupied commercial real estate.  Characteristics include a one page application, and a 12-business-hour approval process.
QuickStep is designed for borrowers with a good credit history, said Paula DeGiulio, assistant vice president and retail branch manager with Banner Bank in Boise. QuickStep provides an additional resource for existing business customers, attracts new customers, and functions as a more streamlined and cost-effective loan for the small business owner, she said.
“It expands what we’re able to do for our customers,” she said. “It helps us grow with them and it helps them grow with us.”
Rob Perez, president of Western Capital Bank in Boise, said that among small to midsized banks in Idaho, real estate as a percentage of total assets typically ranges from 20 to 50 percent. Western, which opened April 2, has a loan pipeline of about 60 percent real estate and 40 percent commercial and industrial.
“The asset composition has been heavily weighted to real estate” at small and midsized banks, “so an interesting question is can they maintain asset growth, let alone grow assets, without historic real estate demand? I’m concerned that there is not the C and I demand to compensate for reduced real estate demand,” he said.
Businesses typically use multiple banking services, ranging from operating loans and lines to cash-management and investment accounts, Perez said. They’re reticent to change banks - unless there is a significant difference in terms or service – and their appetite for credit is lower than that of the real estate borrower, he said.
“So, the ability of general business to fill that void created by reduced real estate demand I think is a tremendous challenge for banking,” he said. “I believe banks that are unable to maintain assets or grow assets become targets for merger or acquisition. And I think there is potential that the downturn in real estate could signal a wave of bank consolidation.”
Demand for owner-occupied real estate loans has softened a bit, on economic conditions, but remains relatively strong, Perez said. It was not fueled by speculation or anticipated residential growth, but instead by the needs of the businesses and owners involved, he said.
Banks are scrutinizing prospective and existing commercial and industrial loans in light of real estate market, in some cases choosing to sell or at least not renew those with notable exposure to real estate, Perez said. On the other hand, many such businesses do not seek to borrow now, he said.