The Credit Available

The notorious “credit crunch” afflicting businesses in Minnesota and elsewhere has made it hard for many companies to find commercial loans in the wake of last fall’s financial-system meltdown. In the case of real estate development projects, lending has all but dried up. And when money to borrow is available, it is more expensive.

But after all the abuse heaped upon bankers for irresponsible lending practices that led to the subprime mortgage bust and then to Wall Street’s near collapse, some Minnesota bankers say they now are tired of being blamed for what they see as a reversion to simple prudence and fiscal responsibility.

“It’s frustrating when you hear people say, ‘The banks don’t want to lend money,’” says Brad Krohn, chairman and CEO of The Business Bank in Minnetonka. “That’s not true at all.”

As of October, his commercial loan volume was flat compared with 2008, but not down, Krohn says. “In this economy, flat is good.” The problem is not that The Business Bank has no money to lend (deposits are up) or doesn’t want to lend it. The problem, he says, is that due to the recession, “there are fewer companies and individuals that qualify for credit.”

Corporate earnings generally are down significantly. Sources of collateral in the form of receivables and inventory levels are down. The value of real estate, a major collateral source, has plummeted for businesses, just as it has for homeowners. “And there’s no real prospect for anything to improve much with the economy the way it is,” Krohn says. “For us to make a loan to support operating losses in this economy would not be prudent banking.”

Those sentiments are echoed by local institutions, including TCF and Bremer Bank in St. Paul. Banks that bucked the trend by adhering to prudent lending criteria over the past decade “have money to lend and want to lend it,” says Steve Meads, president and CEO of Bremer Bank—Twin Cities, noting that Bremer’s deposits are up 8 percent from last year.

But even banks that haven’t tightened their lending standards dramatically (for the most part, Bremer is just making fewer exceptions to its long-standing loan criteria, Meads says) find a shallower pool of qualified applicants. And demand is down even among profitable businesses that might qualify. On both the commercial and the consumer sides, Meads says, “people are trying to save money and reduce their debt level. Everybody’s goal in life now is to save more.”