Things are changing, bankers reply
By Ron Soodalter
During the past few years, the federal government has given the nation’s banks a substantial transfusion of funds to help set businesses back on a productive path and put Americans back to work. At best the results of this decision have proven uneven. The economic woes affecting the nation are still evident on the local business scene as well. The construction business is a key component of the local economy. Yet, according to Philipstown contractors who have applied for loans and lines of credit, the area’s banks have made borrowing difficult to impossible.
The Paper recently interviewed three long-time contractors — Joe Giachinta, Richard Shea and Nick Lisikatos — all of whom have deep roots in the community. Giachinta, proprietor of Mid-Hudson Concrete Products, Inc., lamented the changes that have come about since, as he put it, “the bottom fell out” of the construction business in 2009. “I worked with Fishkill National for years. We’d always gone and talked to them about loans and credit, but after they became M&T, suddenly they just didn’t want to be bothered. They pulled our line of credit, which was only $150,000, and didn’t want to work with us at all.”
Things did not improve when Giachinta moved his account to Chase, where he said he also received impersonal service. “We were just a number to them. At one point, we went to them for a little grace period, but they didn’t want to hear it. I had to lay off half my people. A crew is hard to train, and when you have loyal men working for you, it’s hard to let them go. For a while, I paid them out of my own pocket, but eventually I just had to cut back.”
For contractors, a line of credit is needed to buy materials and equipment during a project or to finance the acquisition of properties. “I have a project sitting idle for the past three years,” said Giachinta. “I had a letter of commitment from Chase, and on the strength of that, I started the project with my own money. Suddenly, they pulled the letter, and I couldn’t afford to go forward on my own. The same thing has happened to others as well.”
Although Giachinta is currently debt free, he acknowledges that the business is far from where it was 20 years ago. “We used to pour 150 yards of concrete a day. By 2010, we were down to 20 yards, and now we’re up to 70.” Although M&T has since reached out to him and helped to alleviate some of his money woes, Giachinta’s approach to business and the banks has undergone a drastic transformation. “It changed my whole mindset. I’ll never borrow money again, if I can help it.”
Richard Shea, town supervisor. shares Giachinta’s view. “I had a $1,000,000 credit line with Wachovia, but after they were absorbed by Wells Fargo, the bank pulled it. They let go everyone I knew there and changed everything. You can’t get to anybody, and the further up the ladder you go, the more dismissive they are of you. I’m a small businessman, but I’m capable of doing a million dollars’ worth of business. Get 11 others like me — that’s a potential $12 million. But the banks just don’t seem to care.”
Shea said he reapplied for his line of credit and was denied, on the mistaken assertion that there was a lien against his house. It took several frustrating days to straighten out the bank’s error, after which they still refused to extend him the million-dollar credit line.
As a result, Shea has lost investment opportunities. “Business is better this year than it has been, but the opportunity to invest in properties has not been possible without the necessary line of credit.” Shea agreed with Giachinta that his situation is not unique. “I look around, and I see several projects sitting for sale that had gone to the bank for seed money and been turned down. It’s a town-wide problem. I’d guess there are $20 million in stalled projects out there right now. I don’t know how any company is surviving without those credit lines, especially the ones with only five or six employees.”
Both Giachinta and Shea point to the government bailouts as the source of the problem.
“The federal government is unaware of the wall that separates businesses from what was meant to be available and affordable money,” said Shea. “The banks got their funding, but they refuse to make it available to the people who need the loans. The bailout money just sits there; they hold onto it to make more money.” According to Giachinta, “The government had the right idea; they just didn’t implement it right. The mistake they made was to give the banks the money without seeing to it that they put it out on the street to get the economy rolling.”
Nick Lisikatos founded Lisikatos Construction, Inc. with his father in 1986. It is an excavation company and, as such, is equipment-intensive. “These days there are no bargains in borrowing money. We usually finance directly through the manufacturer for our heavy equipment needs,” said Lisikatos.
Although he maintains a cordial relationship with staffers at M&T, he no longer relies on lines of credit. In the past, slow payment on the part of his clients placed him in the position of re-paying the bank late as well. Now, he places his clients on a “progress payment” footing — so much up front, another percentage halfway through the job, and final payment at the end — and sees no need to rely on banks for loans. “You need liquid money equal to what you want to borrow, so why borrow? There’s no such thing as available money anymore.” Shea concurs. “If you have money, they’ll give you the money; otherwise, no.”
Mortgages also a problem
All three agree that banks require a perfect credit rating, from either a business or a private citizen, before they will even consider extending a loan. Lisikatos, whose clients are nearly all residential, described the ordeal he sees people going through in attempting to acquire a mortgage. “Nowadays, applying for a loan is a lengthy process, with a redundancy of paperwork, and you’d better have an A-1 credit rating. The average citizen who may have had some colorful credit is out now.”
According to Giachinta, even with sterling credit, the process is lengthy, and the result often disappointing. “It’s practically impossible to get a $600-700,000 mortgage anymore; lower mortgages are possible, but it takes six to seven months to get one, and they peck you to death with paperwork.”
Corporate policy prohibits local bank employees from speaking to the media; two banks directed The Paper to public relations people closer to the top of the organization. Wells Fargo declined to comment.
“We want to keep small businesses alive out there. We are continuing to lend. InNew York state, in the first half of this year alone, we’ve extended $1.4 billion in credit,” said Michael Fusco, New York City-based spokesman for Chase. Asked to what he attributed Chase’s success in a devastated economy, he responded, “We make it a practice to make responsible decisions, and to lend responsibly.”
Nor is Chase alone in pointing to an upswing in lending trends over the past few years. Chet Bridger, M&T’s Buffalo-based vice president of Corporate Communications, cited $71 billion in national loan originations and renewals in the past three years alone, adding, “We’ve placed additional emphasis on growing business in theHudsonValley, through careful and responsible lending.”
With billions in loans to small businesses, why can’t local contractors find the money and credit they need? There are no easy answers. Explained Mike Keegan, M&T’s regional president for the Albanyand HudsonValleymarket, “We’re a large community bank, and we can only be successful if we accommodate our local clients.” He acknowledged contractors have had a rough time generally. “This is one of the worst cycles since the Great Depression, and the construction business is one of the most profoundly affected.” However, he sees the contractors’ problem as one of demand, not financing. “Without the promise of new business, no infusion of money will help.”
Responding to the contractors’ assertion that a “sterling” credit rating is necessary these days for a loan or line of credit, Keegan stressed, “We’ve always tried to maintain consistent underwriting standards. We generally don’t loosen standards when the economy is hot and then tighten things back up when the economy slows, which we believe some of our competitors may be in the habit of doing. The big question is, what was it that caused the banks to pull or reduce your line of credit? If you borrowed in, say, 2007, when the economy was much healthier, and found yourself in trouble in 2009, you might not have been treated as well as you’d have liked. These days, we’re stressing personal service. If people have had a long-standing relationship with us, and they have a problem, we want to work with them. There’s no upside to losing customers.” Joe Giachinta’s renewed relationship with Cold Spring’s M&T branch would tend to bear this out.
The two groups view the issue through different lenses. The contractors, facing a business in which competition has grown, jobs are smaller and fewer and farther between, and revenues have shrunk appreciably, see the banks as the underlying cause of their woes. They see banks as impersonal, disinterested, and unwilling to provide needed funding to help their construction customers create new business.
Conversely, the bankers stress longstanding local relationships as key to a healthy lending program, point to an upward trend in small business loans that increases by billions annually, and express a willingness to help their loyal customers work through their problems. The perceptual gulf is wide. M&T’s Keegan suggested a roundtable meeting and discussion, in which members of the local construction community can meet with him and other bank officials, in the hope of finding a common ground.