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New Jersey banks are offering their small business customers an array of loans, business advice and technology solutions even as financial institutions are faced with a double-edged lending conundrum: A high interest rate environment is causing certain customers to shun loans in favor of using their own cash reserves, leaving some banks with lower commercial deposits. In turn, this is one reason why banks may have less money to lend to others. Simultaneously, banks themselves are being careful in this uncertain economic environment, sometimes turning away less qualified borrowers.
It’s not necessarily a gloomy landscape, however. Jason Goldberg, chief lending officer at Parsippany-based Blue Foundry Bank, notes that while it is more expensive for companies to borrow money now when compared to a year-and-a-half ago, the scenario has not “massively impacted demand.”
Goldberg adds, “We live in one of the most populated areas in the country [in Northern New Jersey], and that gives [our bank] a bit of protection from some of these challenging macro environments.”
Matthew Flannery, senior vice president, SBA director, at Provident Bank, also speaks optimistically, saying, “There is a plethora of small businesses looking for financing for a variety of reasons.” He also says, “The small business lending environment is active right now. However, [again,] lenders are being cautious due to the uncertainty in the overall economic outlook.”
SBA Loans
One lending conduit is the U.S. Small Business Administration’s (SBA) 7(a) program, which provides loan guarantees for banks making loans to small businesses. This business loan program has nonetheless seen its nationwide volume expand from 47,681 loans in fiscal year 2022 (Oct. 2021 – Sept. 2022) to over 57,300 loans in fiscal year 2023 (Oct. 2022 – Sept. 2023).
Provident Bank’s Flannery says, “The demand for 7(a) loans has fallen slightly [at our bank] due to rising interest rates, but certain borrowers who cannot qualify for conventional financing (e.g., startup businesses, companies with limited collateral, and working capital requests) are still able to qualify for financing under the SBA 7(a) program.”
Flannery also details how businesses that have previously taken on debt at high floating rates have reaped the benefits of both the SBA’s 504 and 7(a) debt refinance programs, which permit these companies to refinance debt that had been obtained on unreasonable terms such as from: interest rates above the SBA maximum rate; debt structured with balloon payments; and revolving lines of credit for which businesses now seek to gain a lower interest rates or longer terms.
Flannery additionally notes that owner-occupied real estate acquisitions through the SBA 504 program “have been popular among prospective borrowers because the program requires a lower down payment when compared to typical conventional real estate loans (typically 10%), while still offering competitive low, fixed rates.” These lower down payments allow borrowers to retain more capital within their companies to grow their small businesses.
Technology Advantages
Technology is another sphere where both large financial institutions and community banks alike can assist small businesses. While remote deposit capture and similar technology has been available for years, the coronavirus pandemic accelerated banking technology adoption. Separately, as technology becomes more widely available and its prices decrease for banks, this means that small banks may now have certain customer-facing technology once found only at mega banks. This can include offering online wires as well as products for companies that hold clients’ funds in escrow – such as property management companies, attorneys and physicians – for which online dashboards are provided. Technology for payment solutions and payroll services are also part of the equation.
There’s more: At some banks, onboarding portals allow loan applicants to upload business documents, financials, rent rolls and appraisals into one depository that is, in effect, an online dashboard permitting users to learn where they stand in the application process. Separately, enhanced security for wire fraud protection is now available at many smaller banks.
Relationship Banking and Advisement
The foundations for banking with customers, however, don’t necessarily reside in the technology arena. Echoing the sentiments of others, Blue Foundry’s Goldberg explains: “We’re not a product organization; we are a people organization. Our job is to listen, ask questions, and then ultimately curate the appropriate financing and service portfolio for a customer to execute on what they desire.
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