© 2024 Connecticut Public

FCC Public Inspection Files:
WEDH · WEDN · WEDW · WEDY · WNPR
WPKT · WRLI-FM · WEDW-FM · Public Files Contact
ATSC 3.0 FAQ
Play Live Radio
Next Up:
0:00
0:00
0:00 0:00
Available On Air Stations

Banks are spooked and getting stingy about loans – and small businesses are suffering

Liz Southers runs a commercial insulation company in South Florida. She says the company could grow faster if it had access to more credit.
SouthCo Insulation
Liz Southers runs a commercial insulation company in South Florida. She says the company could grow faster if it had access to more credit.

Updated April 10, 2023 at 7:25 PM ET

Weeks after the collapse of two big banks, small business owners are feeling the pinch.

Bank lending has dropped sharply since the failures of Silicon Valley and Signature Banks. That not only hits businesses. It also threatens a further slowdown in economic growth while raising the risk of recession.

Credit, after all, is the grease that helps keep the wheels of the economy spinning. When credit gets harder to come by, businesses start to squeak.

Take Kryson Bratton, owner of Piper Whitney Construction in Houston.

"Everybody is, I think, very gun-shy," Bratton says. "We've got the R-word — recession — floating around and sometimes it feels like the purse strings get tighter."

Bratton has been trying to get financing for a Bobcat tractor and an IMER mixing machine to expand her business installing driveways and soft playground surfaces.

But banks have been reluctant to lend her money.

"It's not just me," she says. "Other small businesses are struggling with the same thing. They can't get the funds to grow, to hire, to buy the equipment that they need."

Missed opportunities

Tight-fisted lenders are also weighing on Liz Southers, who runs a commercial insulation business in South Florida.

Her husband and his brother do most of the installing, while she handles marketing and business development.

"There's no shortage of work," Southers says. "The construction industry is not slowing down. If we could just get out there a little more and hire more people, we would just have so much more opportunity."

Liz Southers and her husband, James Southers, at their business in Florida. Liz Southers says her business would take more assignments, but finding credit is proving difficult.
/ SouthCo Insulation
/
SouthCo Insulation
Liz Southers and her husband, James Southers, at their business in Florida. Liz Southers says her business would take more assignments, but finding credit is proving difficult.

Southers says it often takes a month or longer to get paid for a job, while she has to pay her employees every week. If she had a line of credit to cover that gap, she could hire more people and take on more work. But while her bank has been encouraging, she hasn't been able to secure any financing.

"They're like, 'Your numbers are incredible.'" Southers says. "But they're like, 'You guys are still pretty new and we're very risk averse.'"

Caution overkill?

Even before the two banks failed last month, it was already more costly to borrow money as a result of the Federal Reserve's aggressive interest rate hikes.

Other lenders are now getting even stingier, spooked by the bank runs that brought down Silicon Valley Bank and Signature Bank.

The Federal Reserve Bank of Dallas surveyed 71 banks late last month, and found a significant drop in lending. Weekly loan data gathered by the Federal Reserve also shows a sharp pullback in credit.

Alex Cates has a business account and a line of credit with a bank in Huntington Beach, Calif.

"We've got a great relationship with our bank," Cates says. "Randy is our banker."

Cates decided to check in with Randy after the collapse of Silicon Valley Bank to make sure the money he keeps on deposit — up to $3 million to cover payroll for 85 employees — is secure.

People line up outside of a Silicon Valley Bank office in Santa Clara, Calif., on March 13, 2023.  in Santa Clara, California. Depositors lined up to retrieve their money even after after regulators rescued the tech-focused lender.
Justin Sullivan / Getty Images
/
Getty Images
People line up outside of a Silicon Valley Bank office in Santa Clara, Calif., on March 13, 2023. in Santa Clara, California. Depositors lined up to retrieve their money even after regulators rescued the tech-focused lender.

Randy assured him the money is safe, but added Cates was lucky he renewed his line of credit last fall. If he were trying to renew it in today's, more conservative climate, Randy warned he might be denied.

"Just because you're only a 2-and-a-half-year-old, almost 3-year-old business that presents a risk," Cates says.

As a depositor, Cates is grateful that the bank is extra careful with his money. But as a businessperson who depends on credit, that banker's caution seems like overkill.

"It's a Catch-22," he says. "I've got $3 million in deposits and you're telling me my credit's no good? We've never missed a payment. They have complete transparency into what we spend our money on. But now all of a sudden, we could have been looked at as an untenable risk."

The broader impact is hard to predict

As banks cut back on loans, it acts like a brake on the broader economy. That could help the Federal Reserve in its effort to bring down inflation. But the ripple effects are hard to predict.

"You want the economy to cool. You want inflation to come back towards the 2% target. But this is a profoundly disorderly way to do it," says Joe Brusuelas, chief economist at RSM.

And lenders aren't the only ones who are getting nervous. Bratton, the Houston contractor, has her own concerns about borrowing money in an uncertain economy.

"Even though I would love to have an extended line of credit, I also have to look at my books and say how much can I stomach sticking my neck out," she says. "I don't want to be stuck holding a bag if things flip on a dime."

Copyright 2023 NPR. To see more, visit https://www.npr.org.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.

Stand up for civility

This news story is funded in large part by Connecticut Public’s Members — listeners, viewers, and readers like you who value fact-based journalism and trustworthy information.

We hope their support inspires you to donate so that we can continue telling stories that inform, educate, and inspire you and your neighbors. As a community-supported public media service, Connecticut Public has relied on donor support for more than 50 years.

Your donation today will allow us to continue this work on your behalf. Give today at any amount and join the 50,000 members who are building a better—and more civil—Connecticut to live, work, and play.

Related Content