Lenders are creeping out from beneath pandemic

Banks say loans are slowly approaching ‘normal’ levels.

(As seen on WZZM 13) Two months after the application deadline for the third and final round of the Paycheck Protection Program (PPP) expired, it has continued to be the driver of the U.S. economy despite other borrowing opportunities.

Bradley Henion

“Companies are a little slow to borrow now because they still have a lot of deposits from cash stemming from PPP payments,” said Bradley Henion, chief lending officer for ChoiceOne Bank. “Some of the borrowers did not use their cash because they were waiting for (loan) forgiveness and they haven’t deployed that cash back into the system. That has slowed loan demand heading into late 2020 and into this year as companies have retained a lot of cash and not having the need to borrow for a lot of expenses.”

According to the U.S. Small Business Administration, there were 11,823,594 loans approved that valued a total of $799,832,866,520 from 5,467 lenders nationwide as of May 31. Two of those lenders locally were ChoiceOne Bank and Mercantile Bank of Michigan.

Both Henion and President and CEO of Mercantile Bank of Michigan Robert Kaminski said the majority of their borrowers applied for PPP loans that were aimed to help businesses financially navigate their way through the pandemic.

In 2019, Henion said there was an 8% growth in loan activity at ChoiceOne Bank. However, that changed in 2020.

“Outside of PPP loans, (loan activity) in 2020 was very slow,” he said. “There wasn’t a lot of activity, but we did $162 million worth of PPP loans in 2020, which added a lot to the balance sheet. It showed a lot of commercial loan growth, but a lot of it was derived from the PPP loan process.”

“Normal banking activity was occurring (in 2020), but PPP certainly dominated last spring and the early part of summer in 2020 and in the early months of this year,” Kaminski said.

Henion said the majority of the businesses that inquired about loans were small businesses that were borrowing $150,000 or less because they needed to keep their employees as their businesses began experiencing COVID-19-related slowdowns. Some businesses requested loans to modify their businesses and adjust to COVID-19 requirements such as installing plexiglass, purchasing cleaning materials and construction.

Robert Kaminski

According to Mercantile Bank of Michigan’s website, the bank helped 3,000 businesses that employ over 56,000 people in Michigan with more than $700 million in funds through PPP loans.

The manufacturing industry has been one of the fastest industries to recover from the pandemic shutdown. Kaminski said companies in that industry primarily used their PPP loans to keep their employees on their payroll and not lay them off, but now that manufacturing companies are emerging from the pandemic and sales are rebounding, he said companies are using the cash they have to purchase equipment, new materials for construction and expansion of their facilities, or to increase their lines of credit.

While the manufacturing industry is rebounding, Henion said during the heart of the pandemic, businesses in the travel and the hospitality industries were the first to suffer and they were frequent borrowers. Now, those industries are slow to recover.

During a normal year, Kaminski said people would apply for different loans throughout the year such as home loans in the spring, summer and fall, car loans throughout the year and consumer spending would increase during the holiday season in November and December, but that did not happen last year.

Although requests for different types of loans have gone down, Kaminski said purchases actually have increased.

“Most people have some kind of credit or debit card in their wallet, and during the early parts of the pandemic last year and continuing through a good chunk of 2021, people’s purchases on those cards were way down compared to 2019,” he said. “They were just way down. But slowly we started to recover as we got to the later months of 2020 and now that we’re in 2021, we are basically back to the normal trend line that we’d see if the pandemic had not occurred. In other words, people are out there. They are buying their groceries. They are buying (tickets) to go on vacations. They are buying things for their homes. They are buying clothing. All intentional purchases have resumed to the level that card activity is where we expected to be, but for a long time there, those card purchases were low, which indicated that people were sitting on their money. There was nothing to really buy because everything was closed, and people were hunkering down and not really doing a whole lot. Now people are out doing things again. They are going on vacations, they are buying more gas (and) gas costs more too. All those types of things (are) showing people are out there spending their money again when they weren’t, especially this time last year.”

Henion said he believes the increase in loan demand will depend on what the interest and inflation rates are.

“If the feds can keep inflation rates in check and interest rates at a low level, I think this fall and into next year we’ll see expansion. But if inflation ticks up and the fed has to raise interest rates, I can foresee caution on that, on the business community expanding and borrowing funds.”