Missoula News

"hunkering down"

Banks, Businesses See Local Signs of the Credit Crunch

By Robert Struckman, 10-01-08

Business owners and bankers say they’re preparing for a downturn, and some have reported canceled credit cards and loans called in, all of it adding up to the first effects of the slowdown and the national credit crunch on the Montana economy.

“We’re hunkering down, cutting costs to make it through,” said Diana Clark of Felco Industries.

“These are good, strong businesses, with good credit history,” said Tom Swenson of the Bank of Montana on Higgins Avenue. He said the credit crunch with national banks first seemed to bring clients into his door, mostly business owners moving assets away from the big national banks.
But Swenson has knowledge of tougher situations, too, such as banks calling in loans.

“‘We’ve got a demand feature in our note.’ Give us the money, right now,” he said, describing the situation as involving a Missoula business banking with a “big national bank that’s not, publicly, in trouble.”

Many businesses use lines of credit, generally renewed annually, explained Rosalie Cates of Montana Community Development Corp. Those credit lines are basically loans, often with a business’s accounts receivable as the collateral. Sometimes credit lines use real estate as collateral.

Cates said she hasn’t begun hearing stories of banks not renewing credit lines.

“I wouldn’t, or I won’t, be surprised to see it. Money’s getting frozen right now. The financial system hates uncertainty,” she said.

Here’s the problem. Banks worry that a client’s revenues will be flat or down next year, or they don’t feel confident that a dollar figure can be attached to real estate collateral. That makes the bank reluctant to extend credit, which makes it hard for the business to pay wages or buy inventory, say, or expand.

“It is the case that people are hunkering down right now,” Cates said. (There’s that word—hunkering—again.) “I’m not talking about the banks. I’m talking about the businesses. How am I going to finance this? What’s my revenue going to look like? That puts their spending on hold.”

This week, small and expanding businesses, and those that rely on credit cards, seem to have the hardest time.

Officials with the Montana Division of Banking, which regulates state-chartered banks, and the Federal Deposit Insurance Corp., which basically keeps tabs on all banks, say Montana’s banks—in general—are in great shape.

“It hasn’t effected us yet,” said Clark of Felco Industries. Felco has four lines of work. Those include the installation of infrastructure for subdivisions. That’s part of the business is slow. Felco also manufactures attachments for excavators and for items for the utility industry. That’s stronger.

“Construction is not a real hot item right now,” Clark said.

“Our customers are doing pretty much the same thing we are, trying to get by with the things they’ve got,” she said.

As for Felco’s three lines of credit, two are attached to real estate and one to accounts receivable. All are reviewed annually. She has no reason to think that credit is endangered, but it’s hard not to be nervous these days.

“We’ll have to wait and see until we get those renewals,” Clark said.

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