Terms toughen, despite flow of federal funds

Ross Kerber writes in the Boston Globe that, even as the federal government pumps hundreds of billions of dollars into the nation’s banks, many New England businesses say they are being squeezed by lenders who insist on tougher conditions or higher rates for their loans.

In Warren, R.I., shoe store owner Francis Jamiel said he recently tried to renegotiate terms on about $400,000 in loans and lines of credit with Citizens Bank, which had been lending to him for years. The bank, to his surprise, turned him down, and Jamiel got a similar response from other banks, including Sovereign Bancorp. “None of the banks would help us,” he said. “I feel like I’m at the bottom of the food chain.”

At Metropolitan Moving & Storage in Cambridge, co-owner Neal Mizner said his lender, a large bank he declined to identify, recently told him it would charge $1,000 to renew a line of credit he’s had for four years. “The banks are obviously desperate for revenues and scraping them up however they can,” Mizner said.

In Boston, commercial mortgage broker Peter Goedecke said major banks like Bank of America and Wells Fargo are pulling back sharply on credit for real estate projects, and “either not lending at all or only on terms so onerous as to not be palatable.”

The terms of bank loans are a hot issue in Washington, as federal officials question whether investing $700 billion in taxpayer dollars into the country’s largest financial institutions is helping the economy. Bank executives say they’re doing their best to keep money flowing, while making conservative loans and caretaking their balance sheets.

Few banks will talk about loan terms in detail. Citizens, Sovereign, and Bank of America, the biggest lender in Massachusetts all declined to do so, or to talk about specific cases like Jamiel, the shoe store owner stuck with the original terms on his business’s credit. But there is data showing that commercial lending is getting more restrictive, while at the same time, consumers face higher rates on credit cards and other debt. The Federal Reserve loan officer survey for January found that in the last quarter of 2008, even as companies pulled back on their spending plans and demand for commercial loans weakened, 65 percent of US banks tightened their lending terms to large and midsize companies. Also, a Treasury Department report released Tuesday found that among the country’s 20 largest banks receiving public funds, median corporate loan portfolios fell a combined 1 percent.

Figures like those reinforce the common criticism that banks “aren’t lending.” At hearings in Congress last week, US Representative Michael E. Capuano, a Somerville Democrat, slammed leaders of the country’s eight largest banks for not extending more credit after receiving so much capital from the US Treasury, and told them to “get our money out on the street.”

Read more at the Boston Globe