Mixed outlook for small business loans

Two-thirds of U.S. small business owners reported a successful 2021 and strong momentum heading into that year, which explains the recent growth in commercial lending from community banks. But it’s not all good news.

Owners are worried about high costs and slowing economic conditions in the year ahead, with less than half of business owners saying they are confident in the 2022 economy.

These were the findings of an annual survey conducted by First Citizens Bank in Raleigh, North Carolina. Results reflect comments from bankers during Q1 earnings season which took place from April to the beginning of this month. Community banks generally reported an acceleration in demand for credit, particularly in their commercial and industrial portfolios.

Banks with less than $10 billion in total assets collectively saw year-over-year loan growth in the first quarter of nearly 3%, according to S&P Global.

Some banks experienced outsized growth in the first quarter. Third Coast Bancshares in Humble, Texas, said its loan book grew nearly 45% from a year earlier. The $3 billion asset bank said it had capitalized on economic growth in Texas and strong demand from its customers for business banking services, among other things. He is also actively recruit lenders that help drive growth.

“The success of these loan teams is fueling profitability and providing new market opportunities,” Third Coast Chairman and CEO Bart Caraway told investors after the company’s earnings release.

Bankers also flagged growing demand for C&I in latest Federal Reserve report Opinion survey of senior loan officersreleased this week.

The Fed survey, which captures sentiment rather than hard data, showed continued healthy C&I activity.

“Banks reported stronger net demand for C&I loans for the fourth consecutive time, from both the largest and smallest customers,” Piper Sandler analyst Scott Siefers said of the survey. the Fed, which is conducted up to six times a year. The result confirms sentiments shared by management teams throughout the last earnings season, he added.

Yet the Fed survey shows that bankers are pulling out of some home loans amid rising interest rates and slowing demand. Fed policymakers raised their benchmark rate by a quarter point in March and half a point this month, pushing up the cost of borrowing. The rate change comes in response to soaring inflation.

The U.S. Labor Department said on Wednesday its consumer price index in April edged down from 8.5% in March, but remained near one. four-decade high at 8.3%. Inflation has exceeded 6% for seven consecutive months, triple the Federal Reserve’s target rate of 2%.

Inflation began to soar in 2021 as the economy rebounded from the pandemic and pent-up consumer demand exceeded available supply for goods. Labor shortages and other challenges in the age of coronavirus have compromised supply chains.

The inflation problem emerges as a top concern for small businesses as 2022 progresses, according to the First Citizens survey.

Only 42% of respondents said they were confident about economic conditions for the coming year. Similarly, 49% were optimistic about conditions for the next two to three years.

“The last few years have compounded the difficulty with new challenges,” Doug Sprecher, executive director of sales strategy at First Citizens, said of the fallout from the pandemic.

Yet 80% of business owners told First Citizens that they were confident their respective businesses would grow this year. Additionally, 72% said they plan to expand their business in the next six to 12 months. Some 35% indicated that they would seek financing to finance their growth.

The cautiously optimistic outlook reflects comments from bankers in first-quarter earnings reports.

For example, Red River Bancshares in Alexandria, Louisiana, said it grew its first-quarter lending by 4% from a year earlier and expects continued progress as it expands in New York. Orleans.

But the $3.2 billion asset bank’s chairman and chief executive, Blake Chatelain, said the industry and its commercial clients are “facing a challenging operating environment in 2022 due to ongoing issues. supply chain and labour, inflation, geopolitical unrest” and additional interest rate expectations. increased.

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