despite talk of economic slowdown
Widespread fear of a national recession has not dimmed the views of several southeastern Wisconsin bankers in their credit outlook for 2001.
Even as the Federal Reserve startled some observers by lowering its rate by half a percentage point to stem the doom-and-gloom attitude on Wall Street, the local bankers observed a positive atmosphere here.
"I think most banks that I’ve talked to in southeastern Wisconsin seem to be pretty eager to lend," said Karl Ostby, president and CEO of Southport Bank in Kenosha. "So I don’t perceive there to be much of a credit crunch in our part of the country."
Ostby also foresees the Fed cutting its rates further when it meets at the end of January, which may lead to a cycle of mortgage refinancing in the consumer sector.
National experts predict the Fed could slash the federal funds rate from its current 6% down to as low as 4.75% or 5% by June to help bolster a slumping economy.
With the exception of the auto industry, Ostby said, businesses in southeastern Wisconsin are, for the most part, doing well.
But the key to any loan application at any time, the bankers say, is to make sure the project makes sense for the business requesting the loan.
"If they’re coming with a request for additional money for whatever reason," says Chuck Mauer, first vice president of Ozaukee Bank, "if they have a sound business plan, they’ve got the business lined up, and it makes good economic sense to do it, we’re certainly going to take a look, and don’t anticipate a tightening of credit (in 2001)."
Ostby agrees, saying projects make sense to banks when the customer demonstrates increased cashflow will result because of the project, be it a business expansion or the purchase of new equipment.
"If they’re doing an expansion or looking at adding some equipment, I think they need to get as comfortable as they can with their customers and try to get as many assurances from them that business will continue," Mauer says. "Right now, we are seeing some customers that are laying employees off. They anticipate later this year to rebound, but again, that’s not a for-sure thing. They need to minimize their risk and to assure themselves and the bank that business will continue as they anticipated."
Even if banks do start tightening their credit policies, business owners still have options. In fact, Jeff Reimer, a senior vice president of Milwaukee Western Bank, says tighter credit means less competition for him, explaining that conventional banks tend to lend money to the most profitable companies. Reimer, a self-described aggressive lender, heads Milwaukee Western’s finance division.
"A good economy very frequently masks less efficiently run operations," Reimer notes. "And as soon as you have a tightening economy, inefficiencies in either sales or production or distribution or finance become apparent because a company’s weakness may be exploited by the competition when there’s a smaller pie. … They’ll start losing money because they weren’t operating as efficiently as their competition."
Reimer’s finance division takes a more hands-on approach with companies that may fall into the inefficient category, structuring the company’s operations to make a loan work.
"We anticipate that our clients will continue to grow despite changes in the economy," Reimer says. "We are prepared to support their needs, and we don’t intend to change our lending criteria based on the economy."
Another factor business owners should consider is developing a long-term relationship with a bank.
"They need to know how the bank is going to act in good times and in bad times," Mauer says. "(They need to ask,) ‘Is the bank going to work with me if I do stumble or if I have a rainy day? Are they going to stand by me and work through my problem?’ And we certainly do that as reasonably as possible."
Whether businesses around southeastern Wisconsin start breaking out their umbrellas for that rainy day remains to be seen.
