Small business borrowers still cautious

When Robin Pugh and Carl Foster bought Queen Associates in early 2011, the uptown Charlotte IT staffing agency had to turn down business in those early days because their 15-member team was already busy.

Fast forward to 2014. Now, with a staff of 120, the firm can take on that new business – a growth that has led to revenues doubling in each of the past three years, the owners say.

What helped make the difference, Pugh and Foster say, is access to small-business bank loans. Wells Fargo, the company’s lender since early 2012, recently increased the company’s line of credit for the third time, to $1.5 million.

“When you grow fast, no matter what business you are in, it takes capital,” Foster said.

Small-business borrowing signals growth in the economy: When owners are optimistic, they borrow to expand and hire.

But owners also are exercising caution about borrowing, with many weighing their ability to pay back.

Since banks pay close attention to all aspects of a borrower’s business, Foster said it’s made owners like him better at monitoring their companies.

“They’re evaluating that our balance sheet is strong. … They watch our sales and make sure they’re trending in the right direction,” Foster said.

“I don’t think there’s much margin for error in this economic environment. … We don’t have the luxury of trying something without understanding it’s going to work.”

Other owners may be hesitant altogether to ask banks for money. Rod Potter – who organizes the Charlotte Business Owners group, which holds monthly networking meetings – says small business owners are generally optimistic.

But since they function on a very small budget, they don’t tend to borrow “until they really see they can really take things to the next level.”

Mixed perceptions

Some owners also believe that banks aren't willing to lend small businesses money.

Potter says the overall feeling among members of his group is that it's harder to get loans granted by banks than it was a few years ago.

Banks, however, say the numbers show differently.

Bank of America has reported granting $10.7 billion in new small-business loans in 2013. A report issued last month by Wells Fargo Securities Economics Group notes that while the total volume of banks’ small business loans remains depressed by historical standards, it is at the highest level since late 2010. Loans less than $100,000 have seen the biggest improvement among small business loans over the past year, rising 2.8 percent, according to the report.

“Small-business owners may not understand how a bank can help them, will help them, and is interested in helping them,” said Wes Beckner, BB&T’s regional president in Charlotte.

Several banks in North Carolina say small business loan requests are on the rise, and they’ve added staff to accommodate these consumers.

Last year, Wells Fargo added about 1,500 bankers nationwide who serve small businesses and consumers. Bank of America has hired more than 1,000 small-business bankers. BB&T and PNC have added staff to their community banking center to serve small businesses.

Beth Hoving, Bank of America’s North Carolina small-business banking manager in Charlotte, said the bank has seen more optimism in North Carolina than in other areas. Demand for loans in the Charlotte region has remained stable, and has even seen some increase, she said.

But Chris Kwiatkowski, head of government guaranteed lending at VantageSouth Bank, thinks potential borrowers’ appetite, as well as the pool of possible borrowers, are both smaller than before the recession because the economy is still recovering. Plus, he said small-business owners now believe that “you need to be much more thorough in your preparation.”

More borrowing to come?

Growth plans may make small-business owners more willing to ask banks for money. A biannual survey recently released by PNC shows 12 percent of small businesses plan to add new full-time employees in North Carolina, up from earlier this year.

Top borrowers, according to the Small Business Administration’s North Carolina lending list, include child care services, hotels and motels, automotive repair, gas stations with convenience stores, dentists, chiropractors and pharmacies.

In Charlotte, the SBA office says it has received increased inquiries about loans, especially from start ups. The office provides a type of loan guaranteed by the government that is issued through banks.

SBA loans doesn’t require collateral, which may be a better fit for companies that have a shorter credit history, according to Mike Ernandes, SBA spokesman in Charlotte.

Overall, Ernandes said, the “lending condition is definitely improving.”

At Queen Associates, Pugh and Foster said Wells Fargo loans have been pivotal to company growth. Now with teams in 14 locations, the company is looking at acquisitions in 2015 to gain even more territory.

“It’s a world of difference, just in the sheer volume of what we’re doing now,” Foster said.

“The geographic growth, the client growth has been phenomenal.”

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