These are certainly troubling financial times. Innkeepers (Present and Future) have wondered aloud about the impact of the current crisis on their ability to conduct business.
In truth, there are two financial worlds that function independently of each other, rarely crossing paths. One is the Wall Street based mega investment banking world that creates such products as “credit default swaps.” If you do not know what they are, fear not. No one else does either. Despite that, there are 62 trillion dollars in credit default swaps outstanding (From “Dept. of Magical Thinking”, The New Yorker Magazine, Sept. 29, 2008)
The other banking world is the less visible smaller community and state based banks, which stay close to home, hold no sub-prime mortgages and do not lend to Bezerkistan. These banks are conservative and healthy, with money to lend and the demand is currently soft. They are looking for good loans.
These are the banks that for years have financed our Inn transfers. If a deal makes sense there is a local bank ready to participate. Many of the loans we have managed have SBA 504 loan participation through a Certified Development Corporation. In cases where the cash flow is weak, seller participation in the financing is required.
Over the past several years, this second, quieter banking world has been supportive of our smaller, quieter segment of the hospitality industry. This has not changed. If you are thinking about or are ready to move (in or out), this is as good a time as any. Calls to several commercial loan officers have reassured me that these community banks are very much in business. Interest rates are relatively low and our traditional sources of financing are ready willing and able.
As I was writing the above, I spotted an article in our local paper, the Brattleboro (VT) Reformer, that strongly supports my view. It is worth some repetition.
The article begins by noting that “Vermont Banks have witnessed a steady rise in deposits during the last few months.” The article points out that Vermont Banks do not sell “exotic” loans. Overall, “Vermont banks did not get into the sub prime lending and remain well-capitalized with additional money to lend.”
Chris D’Elia (President of the Vermont Banking Association) said the trend among community banks was not unique to the Green Mountains. From his discussions with other local banks across the country, the community financial institutions have maintained a stable business during a nationwide crisis. “It does appear that consumers in other states are looking to local financial institutions as a place to put their money into and to do business.”
Of course the larger economic outlook is of importance to all of us. However, the segment of the banking industry we have relied on for loans and support is healthy and ready to continue to provide the capital lifeline we need.