Central Mass Experts: Big Banks Holding Back Economic Recovery

Friday, August 16, 2013

Steven Jones-D'Agostino, GoLocalWorcester Contributor

Big banks are doing no favors when it comes to jump-starting the economy.

Vincent DeVito thinks the economic recovery in Central Massachusetts has been sustainable–although, not a surge. “So it’s not like people are drinking from a fire hose,” he adds.

But DeVito, a Bowditch & Dewey partner and Institute for Energy & Sustainability board member, worries that not enough of Big Banking–humungous financial institutions–are stepping up enough to the small-business lending plate. When Big Banking is compared to credit unions, the result makes Big Banking look quite tight-fisted.

Small-business loan approvals at big banks ($10 billion+ in assets) jumped to an all-time high of 17.4 percent in July from 16.9 percent in June, according to the latest Biz2Credit Small Business Lending Index,a monthly analysis of 1,000 loan applications on the Biz2Credit website. Big-bank approval rates also increased by more than 50 percent, between July 2012 and this July. Still, that pales in comparison with the small-business loan approvals by credit unions, which improved to 45.1 percent in July from 44.8 percent in June 2013 - ending a 13-month slide in which lending approvals plummeted more than 20 percent.

GoLocalWorcester has interviewed several Central Mass. business leaders, including DeVito and Vinod Vaidyanath of Webster First Federal Credit Union, who share a concern about Big Banking's amount of small-business lending. The community banks and credit unions in our region are–compared with Big Banking–much more ready, willing and able to finance qualified small businesses.

A two-edged sword

The strongest wealth and job growth in Central Mass. has been in the technology sector, Vincent DeVito observes. It’s a “multi-faceted” sector, he adds, that provides many well-paying, project-long jobs, and is supported by workforce-training programs for “employable, project-oriented” people seeking to acquire or enhance technology skills.

The Central Mass. tech sector is not just for rocket scientists, DeVito observes. “You have your accountants, lawyers and other deal-oriented business professionals,” he says, who help technology clients grow and/ or acquire other tech firms. There’s also, he notes, the growing number of retrofitters who either install energy-efficiency systems in homes and businesses, or retrofit commercial fleets to run on cleaner natural instead of diesel gas. “Each part of the economy is affected by the clean-technology innovations,” he says. “It’s all focused on [technology use] in a cost-effective manner and making an investment that isn’t irrational.”

As key examples, DeVito cites the energy-efficiency opportunities in the commercial- and small-business areas–much of which, though, are still driven by federal and state funding. And our region is seeing an increasing amount of solar- and wind-energy installations–often called either “clean” or “green” tech. “It’s odd for any of your readership to drive around Central Mass.,” he says, “and not see some type of technology-driven, electricity-generation apparatus.”

Another local, bright light is National Grid’s smart-grid operation in Worcester–which the electricity-distribution giant chose largely because of the city’s valuable downtown fiber-optic grid. “That’s not by happenstance,” DeVito says. “One of the reasons why I think Worcester’s growth is steady and sustainable is because it has all of the components of a healthy socioeconomic system.”

All that said, DeVito points to a major hurdle facing growth and expansion of the Central Mass. technology economy. “I think the biggest obstacles are achieving financing,” he says, “which is a two-edged sword.” While Big Banking is investing in our region’s technology sector, he points out, the beneficiaries are “sophisticated investors in large-scale projects that they know work and, by economies of scale, the dollars [invested] just make a lot more sense to them.”

The end, in 2012, of a popular federal tax-credit program–known as 1630B–for small-scale solar-energy projects stopped a lot of those efforts dead in their tracks. The 1630B plug was pulled after fiscal conservatives complained that the program —which had cost $9.6 billion through 2011, nearly three times what Congress had expected — was unaffordable in an era of tight federal budgets.

Since then, DeVito says, “you see more bigger [technology-sector financing] things happening, and the smaller stuff has slowed down a little bit.”

Bank of America–one of the Top 5 among America’s mega banks–continues to shy away from smaller-scale clean-tech investments. But DeVito somewhat defends them, noting that “they’re no different than anybody else” in Big Banking. “Traditionally, they do fairly thorough due diligence.” To which he adds with a laugh, “They do due-diligence due diligence, if you will.”

That said, DeVito doesn’t think Big Banks are going overboard on due diligence, after helping to crash America’s economy a few years ago. “If you don’t do appropriate due diligence,” he says, “then you’re not being responsible to the shareholders and the people that are investing in you.”

Heading in the right direction

Bank of America and its Big Banking brethren may be continuing–with the aid of a gridlocked Congress–to practice this sort of due diligence. But local banks and credit union in Central Mass. are showing less reluctance to lend to small businesses–including start-ups.

One of them is Webster First Federal Credit Union, with assets of about $650 million. That, by the way, is a mere fraction of a fraction of Bank of America’s $2.1 trillion–second only to J.P. Morgan Chase’s $2.4 trillion.

At Webster First, Vinod Vaidyanath, assistant vice president of business development, reports an increase this year in housing purchases by first-time buyers–mostly, of single-family homes. This is because of the big drop in housing prices that followed the crash of the sub-prime market–although, as he notes, “real-estate prices are increasing, right now...[T]here’s a lack of inventory out there, right now, so people are buying.”

Even construction of new housing is picking up this year in some of Greater Worcester’s more affluent suburbs, according to Vaidyanath. “We, as a credit union, have seen some strong - especially, strong in Holden, Shrewsbury and Grafton–increase in construction.”

While Webster First’s amount of home-mortgage and auto-loan approvals is up in 2013 over last year, the credit union’s income is down slightly due to lower interest rates. “We expect to make it up over the next few months,” he says, “because interest rates are increasing, right now.” Webster First, he acknowledges, can also make it up from a continued increase in both mortgage volume and housing prices.

At the commercial-loan window, Webster First has also been seeing start-ups–mostly, in the service sector–requesting loans. This means, Vaidyanath says, that “people are looking to open new businesses.” He says the credit union has recently made loans to two start-ups in the service sector - a fitness center and a transportation service - both of which were credit worthy.

“I see more people trying to buy commercial investment properties and also commercial buildings,” he says. But, he adds, that this does not mean a return to the highly speculative market that decimated the national economy.

While Big Banking may not being doing much to help small business and start-ups, at least the Federal Reserve is continuing to keep a tight check on interest rates. For this reason, Vaidyanath acknowledges, there is no batten-down-the-hatches mentality taking root at Webster First.

All things considered, Vaidyanath sounds heartened by the new Central Mass. economy that’s emerging via new technologies and health-science services. He thinks our region is heading in the right direction–and, in a sustainable way.

Perhaps the due-diligence masters of Big Banking will hear this hopeful message and begin loosening their Scrooge-like grip on loan money for small businesses in Central Mass.–and elsewhere across America.

Steven Jones-D'Agostino is chief pilot of Best Rate of Climb: Marketing, Public Relations, Social Media and Radio Production. Follow him on Twitter at @SteveRDAgostino.