Borrowing is back

 Wide range of businesses are incurring new debt to hire and expand

By Claude Solnik
The Daily Record Newswire

LONG ISLAND, NY — Emboldened by rising revenues and a general belief that the national economy has turned a corner, more companies are borrowing to grow their operations – and, in the process, banks’ loan portfolios are expanding, too.

Since 2008, several lenders have noted the reluctance of borrowers who seemed to be keeping one eye on the faltering economy. But armed with rosier forecasts, financial-institution executives now say those gun-shy borrowers appear to be putting their recession-based concerns in the rearview mirror.

Manufacturers, builders, distributors, hotels, professional-service providers and a wide range of other businesses are incurring new debt as they look to refinance, hire new staff and bolster their marketing plans – a far different environment from a few years ago, when the few loan requests that trickled through were aimed solely at keeping struggling companies afloat.

“They’re looking for working capital,” said Michele Gonsalves, assistant vice president of Bethpage Federal Credit Union’s business banking group. “They’re trying to take advantage of the improved economy and the growth they’re experiencing.”

On the rise

It may be too soon to say the ghosts of 2008 have been busted, but it’s fair to say the average borrower’s fear factor may have dissipated somewhat. Certainly, borrowers seem more inclined to finance the things they used to finance, before the Great Recession radically changed executive minds and bottom lines.

“Before 2008, companies would use debt to expand and increase manufacturing,” said Jon Ten Haagen, CEO of the Huntington-based Ten Haagen Financial Group. “Then 2008 hit.”

Now, six years since the worst of the recession, “the economy’s coming back,” Ten Haagen noted, and with better days ahead borrowers are getting back to their old habits.

“Corporations are a little more comfortable taking on debt, because they can foresee growth of their company and products,” he said.

To that end, many financial institutions are ramping up their lending operations. Bethpage Federal Credit Union, which launched a business-lending division in March 2013, did $9 million total in commercial loans last year – and has already inked $21 million in such loans in 2014, with another $15 million in the pipeline.

Bethpage Federal is not alone: Lake Success-based Flushing Financial ended the second quarter with $362.3 million in loan applications in various processing stages, and has even hired new loan officers to accommodate demand. Gerald Lipkin, CEO of New Jersey-based Valley National Bancorp and its 14 Long Island branches, said his bank saw a “solid uptick in commercial and industrial loan demand” in the second quarter, while New Jersey-based Investors Bancorp, which has six Nassau and Suffolk branches, expects to grow its commercial and industrial loan portfolio to $1 billion this year, adding $400 million in 2014 loans to the $275 million it made last year.

“We’re seeing a lot of activity,” said Mark Noto, Investors Bancorp’s senior vice president and head of commercial and industrial lending. “Companies are ready to make the decision to grow. They’re getting braver and coming out of their shell.”

Spending spree

Indeed, it appears optimism is now overruling uncertainty. Seventy-three percent of business owners plan to expand their workforce in the next five years, according to a May survey by Bethpage Federal, with 40 percent of those owners planning to grow by at least 50 percent.

Another study by PricewaterhouseCoopers notes that private companies plan to invest 8.4 percent of sales in capital projects over the next 12 months – a signal long-term growth is a good bet.

Companies can also grow by issuing stock rather than taking on debt, but Eric Altstadter, partner in charge of EisnerAmper’s Long Island office in Syosset, said debt is often the better choice.

“Debt is so much cheaper than equity,” Altstadter said. “It’s a fixed rate of interest. When you issue equity, you only have so much you can issue. The price is usually more expensive.”

None of this means everybody seeking a loan automatically gets one. Banks with under $10 billion in assets approved just 50.9 percent of small-business loan requests in July, according to Manhattan-based lending tracker Biz2Credit, while bigger banks approved 20.1 percent – better than the 17.4 percent of loan requests approved in July 2013, but hardly a stellar number.

Still, the uptick proves “big banks are becoming increasingly aggressive in small-business lending,” according to Biz2Credit CEO Rohit Arora. As an example of that aggressiveness, “larger banks are taking away higher quality customers from smaller competitors,” Arora noted.

While some businesses take large loans to fund expansion (Investors Bancorp’s average business loan is $3 million), others borrow to supplement their spending.

And not all commercial loans, particularly smaller ones, are being made by banks: The Dreaming Tree, a massage and wellness spa in Northport, combined surplus revenues with a $15,000 loan from the Long Island Development Corp. to open a second Northport location.

“I’m thriving,” said owner Jacquelyn Nuzzi, who’s covering most of her overhead with income generated by a bulging customer base. “My numbers were off the charts. It was six to eight months of me turning people away on a regular basis.”

Companies also may be borrowing to keep cash flowing as they become more successful in their efforts to win new customers, but must wait to be paid by those new buyers.

“They’re extending credit, bringing on new customers, investing in their company to be able to grow,” Noto said. “That drives what we do.”

The bright side

While borrowing may be back, many business owners remain reluctant to take new loans, even if they can. Leslie Tayne, managing director of Melville-based Tayne Law Group, has been hiring, but she’s not incurring debt to do it.

“I have a healthy business and excellent credit,” Tayne noted. “And I have no interest in getting a loan from the bank to grow my business. I want to grow it based on what’s available to me. Borrowing money comes with a price.”

Tayne likened small-business debt to personal debt, noting it’s typically backed by the owner’s assets.

“It’s like consumer debt,” Tayne said. “It’s based on the individual borrowing the money.”

The big test in whether the loan surge will continue is whether borrowing companies can find enough demand to sustain their expansion plans. Nuzzi, whose firm has been in business eight years, said her second site is already fully booked four out of seven days, and credits her loan with “getting me to the next level” – but other small-business owners are not so sure.

And then there are those who are super sure that brighter days lie ahead. Rockville Centre-based Catholic Health Services of Long Island just issued $60 million in debt – and plans to issue another $60 million soon – all in the name of expansion.

That doesn’t necessarily mean, however, that debt – after six years of recession-encouraged belt-tightening – is back in style.

“It’s how much debt you have and how your business is doing,” Gonsalves said. “The economy is looking better and it’s all moving ahead, so things seem more optimistic.”

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