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STAFDA 2010 Conference Recap
The Distributor Board moderated a panel of bankers at STAFDA's Annual Conference in Phoenix, Arizona on November 7, 2010. The focus of the panel was on what distributors should expect credit availability to be in 2011.
Herb Shields, one of The Distributor Board's Principals, opened the session by introducing Dr. David Altig, Senior Vice President of the Federal Reserve Bank of Atlanta, who then gave the audience his view of the current situation in the credit markets.
Dr. Altig pointed out that the 2009/10 recession was one of the deepest we have seen in the last 100 years. He indicated that the recovery will continue to be slower than normal largely because of the depressed state of both commercial and residential real estate markets. Banks are operating under increased regulation and will consequently examine each lending situation very carefully.
M. Jay Heilbrunn, one of The Distributor Board's Principals, reviewed the results of the pre-conference survey that was sent to some STAFDA members. Here are some key findings:
- A majority (64%) of the respondents consider bank financing to be a very important part of the over-all business.
- Banking relationships were maintained by 69% of the respondents through 2009 and 2010.
- Most STAFDA members do not want a higher credit line at this time, and in the past 12 months, credit lines have not changed for the majority of the respondents.
- Three main classes of assets - receivables, inventory, and equipment are typically used as collateral for bank loans.
- Access to credit has not been an issue for the majority of the respondents.
Each of the three bankers on our panel then addressed some specific questions that had been raised during a pre-conference survey of STAFDA members. Dean Rennell, Regional President of Wells Fargo Bank in Arizona, discussed several reasons why banks are lending. Dean explained that business lending is profitable and that major banks have plenty of capital on hand. He noted that the same may not be true for smaller, community-based banks which may contribute to the "banks are not lending" assumptions in the media. Dean mentioned that borrowers are paying off old loans, and that banks want to replace these in their portfolios.
John Weber, Senior Vice President of Middle Market Banking for Associated Bank in Chicago reviewed the necessary information that banks need to see when a company is looking for credit. This includes:
- Financial information
- Collateral information
- General information on the business
Chuck Gitles, Vice President in the Commercial Lending Department of American Chartered Bank in Chicago
discussed the reasons why banks are more selective with new clients and pointed out that the number of bank failures in 2010 will equal or exceed the 2009 number of 140. Chuck explained that banks have tightened loan covenants and terms. Owner's credit and personal finances are key factors in loan decision making. With fewer competitors, Chuck said that banks are seeking to improve their margins which will be reflected in higher rates for customers.
After taking audience questions, M. Jay Heilbrunn summarized expectations for 2011 as follows:
The economy will be better, maybe not the robust environment of 2005 - 2007, but better.
Bank regulations will be more stringent. Be prepared when you go to your bank. The easy money days are in the past.
Interest rates will be about the same or higher. The Fed will be under pressure to raise rates and banks will be under pressure to improve profits.
Finally, Credit will be available. Banks report a lot of money to lend; however, borrowing qualifications will be more rigid and take longer than in the past.