Jumping through hoops: small businesses work harder for commercial loans.

• Author: Brightly, Denver
• Position: Focus

SanSegal Sportswear has thrived in Utah for 33 years. But last November, the company was left in a quandary after its lender pulled the rug out from under an $8 million line of credit.

"They told me in mid November, 'Don't get excited about a renewal because there is not going to be one,'" says Macon Rudick, a partner in the SanSegal business. "They hadn't even seen SanSegals 2010 financial statement."

After a six-and-a-half-year relationship with the bank, Rudick attributes the nonrenewal of his credit line to frozen credit markets and a paradigm shift in business lending. As best as he can tell, what's going on in the commercial lending world is a matter of economics; "Yes, the banks have money to loan, but if you don't need $10 million or up, they won't even call you back," he says. "And without financing, most companies would be out of business."

During the ensuing months, as SanSegal shopped for a new lender, it appeared the company might need private equity or perhaps a merger with a competitor in order to survive. However, a contact in North Carolina referred the company to TAB Bank, an industrial bank headquartered in Ogden. "We were successful in getting TAB Bank to complete a loan agreement for the $8 million, replacing our previous line of credit with equal or better terms," Rudick explains.

Eric Myers, director of marketing for TAB Bank, says the lender has found a niche market picking up commercial borrowers that traditional lenders don't want. In fact, many of its 300 customers have come to TAB Bank for that very reason--traditional lenders didn't want them.

"We get a lot of looks from businesses because traditional lenders are not comfortable with the lending situation anymore," he explains. I believe a lot of the changes in the lending environment have to do with more stringent application of FDIC regulations, which makes the commercial lending industry nervous. It's like Washington is saying, 'Please make more loans,' and the banks are saying, 'You don't want us to make any bad loans.' Since many customers don't fit today's lending criteria, they are finding it difficult to borrow money"

Higher Obstacles

Wadsworth Construction President and CEO Kip Wadsworth says his 15-year-old real estate development company didn't get sent packing by its traditional lender, but he has found that commercial lending has changed nonetheless. "Banks aren't willing to take the risks they were before. They got burned, and many still remain...