New eatery, bond sales belie dearth of credit

November 18, 2001|By JAY HANCOCK

WHAT credit crunch?

Only a few weeks after the Sept. 11 terrorist attacks, Len and Char Hollick landed a loan from Key Bank and Trust to open their restaurant, Joppa Seafood & Subs, on Route 40 in Harford County.

The economic slowdown must have been on everybody's mind, but "in conversations with the bank it was never mentioned," says Len Hollick. "Of course me and my wife had a concern about it. But we've seen times come and go like this before, and we just have a gut feeling, a strong feeling if you will, that things are going to improve."

So do many lenders, apparently.

Big business is complaining that banks are making the slump worse by denying money even to deserving companies. Bankers have hung out the "Closed for New Business" sign, critics charge, after getting badgered by regulators about risky loans in the economic aftermath of Sept. 11.

"This credit crunch is now the No. 1 impediment to recovery," Jerry Jasinowski, president of the National Association of Manufacturers, told another newspaper.

I don't see it. Especially in Maryland. I have searched fairly diligently for stories of canceled loans, rejected credit applications, aborted stock placements and other kinks in the financial hose, without much success.

Is there a credit drought for small, startup enterprises such as Joppa Seafood & Subs?

"I've probably done about 15 financing packages since Sept. 11, and the deals that I thought would get done before Sept. 11, they're getting done after Sept. 11," says Robin Booth, a small-business consultant based in Owings Mills. "I haven't seen them pulling the reins in."

Rejecting borrowers is especially tempting now because the lowest short-term interest rates in four decades help bankers make profits without issuing new loans.

Bank of America, for example, pays only 1.44 percent these days on three-month deposits. It can turn around and invest that money in Treasury securities for a return of two or three percentage points with no credit risk.

But bankers still seem willing to brave the business jungle.

"Our lenders have not put a cold shoulder to our clients," says Ken Bourn, a counselor at Harford County's Small Business Development Center.

Likewise, in home construction "the money supply is good," says John E. Kortecamp, executive vice president of the Maryland Home Builders Association.

So it looks like the well-managed little guys are still breathing credit oxygen. What about big corporations? Maybe they're the ones getting choked.

"There doesn't seem to be a credit crunch at this point in the sense of high-quality companies borrowing," says Dan Green, an economist with Economist.com who follows the bond market.

Quite the contrary. Corporations are seizing on low interest rates by borrowing billions through bonds. Bonds are Wall Street's way of extending loans similar to the ones banks make, and in recent weeks there have been plenty of takers.

U.S. corporations issued a staggering $74 billion in high-quality bonds in October. Almost $30 billion were sold in the last week of the month, a record.

These companies are generally refinancing existing debt, so they're not helping the economy by building plants and buying computers. But if there were a true credit crunch, the firms wouldn't be able to refinance.

Perhaps it's the medium-size companies that are in credit purgatory, the ones too small to sell bonds.

"I have seen some clients in mature industries where their lenders are all of the sudden saying, `We really don't want to be here and maybe you should go somewhere else,'" says Daniel L. Goldberger, a partner in the Baltimore office of accountants Grant Thornton who works with middling-size manufacturers.

But other companies have been able to refinance at lower rates, Goldberger said, and the worst that many of his clients are seeing is stricter requirements for collateral, liquidity and capital.

That's not a credit crunch.

Even the famous collapse in stock financing for infant high-tech companies isn't what it's cracked up to be. Unlike bankers and bondholders, stock investors take ownership stakes in companies.

"The quantity of the deal flow is down a bit" for venture-capital stock investments, "but the quality is either the same or improved," says Donald M. Spero, director of the Dingman Center for Entrepreneurship at the University of Maryland. "Entrepreneurship is alive and well and thriving, but it's tougher and more sober."

Of course it is. The whole financing environment is tougher. That's what recessions are for. The economy is weeding out the inefficient, the overextended, the unlucky and the lunatic.

No longer are people financing companies that promise to deliver groceries over the Internet. Bankers are actually paying attention to the fine print on loan contracts.

But at the same time, there isn't a lot of evidence that financiers are overreacting.

Bank loan in hand, Len and Char Hollick plan to open Joppa Seafood & Subs sometime next month. It'll have a nautical theme, with a maritime mural and a 5-foot ship's steering wheel as you go in. Try the "Pirate's Plate" or the "Mariner's Seafood Platter."

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