Credit crisis most affecting businesses in region

The economic earthquake on Wall Street over the past week has not set off the kind of financial tsunami that swamped the country in 1929, but even the Shawano area is being somewhat rocked by the waves.

And while everyone is worried about losses incurred to 401(k) accounts, potentially longer-lasting effects are being felt in the credit markets where businesses and consumers will face much tougher scrutiny to get a loan.

“Those people having a hard time getting loans today are the people that should have had a hard time finding a loan last year or two years ago or three years ago,” said Tom Pamperin of Premier Bank.

Pamperin said many banks were putting deals together to lend people money who shouldn’t have been able to borrow money.

These subprime loans as they’re called were bundled and sold as securities. As the bubble burst in the housing market and loan defaults started to rise, many large banks holding these securities were hit with substantial losses.

Eventually, those losses — and subsequent bailouts of troubled banks — led to the fear and panic that gripped Wall Street, where the Dow Jones fell by nearly 2,400 point over the last eight days of trading, or about 22 percent. Over the course of the week, investors lost $2.4 trillion — for a total of up to $8.4 trillion over the past year.

Many investors and financial experts believe the market has bottomed out — or is at least close to it — and will start to recover, but the credit markets may emerge from the financial mess into a new world order of more restrictive lending.

Some businesses in the area are already feeling it.

“It’s harder to obtain credit,” said Steve Sengstock of Shawano County Economic Progress, Inc.

The city of Shawano and Shawano County both have revolving loan funds available to businesses, but obtaining a loan through those funds requires borrowers to secure a matching loan elsewhere.

“Businesses are approaching us and they’re unable to get those matching funds,” Sengstock said. “We are beginning to see some of that, for sure.”

Even some businesses that might be able to secure funding are waiting due to the economic uncertainty.

“We see a lot of businesses that might be contemplating projects that are maybe having to hold off or wait because they want to see what’s going to happen,” Sengstock said.

Area lenders and those who work with them say conditions in the area are still strong.

“I deal with basically all of the local lenders,” said Jim Warren of real estate firm Warren Nett and Associates. “They look quite solid and they’re quite confident we’re going to get through this thing OK.”

Warren said he worked on two refinancings over the past week.

“One of our lenders was a little more cautious and the other lender was business as usual,” he said.

Pamperin said it is business as usual at Premier Bank because lending already was being held to high standards.

Tom Young of Pioneer Credit Union said lending there never ventured into the risky subprime area.

Speaking generally about market conditions, however, Young said commercial borrowing is the area seeing the most significant problems.

“Institutions are tightening up their underwriting standards,” he said, “making it harder for businesses to expand even though they want to expand or even keep their business going because they can’t get their working capital or their working cash.”

Start-up businesses, meanwhile, will have to come to the market able to prove they have a workable business model.

“The days of somebody coming with an idea to start a business with no money down and no history in the business — no experience in any type of business and limited net worth or equity to handle what’s probably going to be a difficult time when you get started in a business — the days of getting those loans are done,” Pamperin said.

Long-established businesses with existing contracts for lines of credit and no need to borrow additional money are apparently faring best in the current economic turmoil.

“As long as you’re not going out and trying to get new loans, you don’t really have a concern,” said Jon Moreau, vice president and chief financial officer for Aarrowcast, Inc. “We’re in a contract for a line of credit and as long as we don’t want to go outside those bounds — which we don’t have any plans to — we don’t have any issues.”

Pamperin said businesses that may start to falter are those with problems likely unrelated to the tightening credit market.

“If a business is suddenly now in a case where they can’t cover payroll or purchase of materials, there’s probably something else going on with the business,” he said.

However, at least one area business — Karcz Motors of Pulaski — has closed its doors citing not only a distressed auto industry, but also a lack of credit from lenders.

“I know the Pulaski area was upset about losing that institution, because it was an institution,” Young said.

Meanwhile, there is reportedly a Shawano business said to be desperately seeking financial help and so far unable to secure it. Sources who were not at liberty to name the business said it is hoped a lending package of some kind can be put together and they were optimistic that would happen.

Overall, however, the hard economic reality may be that a kind of Darwinian process is in play, a financial survival of the fittest.

“I think we are going to see the weeding out of some businesses that were doing fine when everything was going great, but at the first hint of trouble they were going to struggle a little bit,” Pamperin said.

“We’re in a recession,” Young said. “There are going to be people that fall by the wayside and businesses that fall by the wayside. I don’t know if it’s (a question of) funds not being available to them in this area or if it’s just the economic situation.”

Realtor Terry Hilgenberg said the days of a freewheeling economy are over.

“It seemed like there was never an end to growth,” he said. “All of a sudden that growth stops and people are sitting there saying, ‘we didn’t prepare for this,’ or ‘we didn’t put enough in the piggy bank to keep our operation going.’”

Hilgenberg said every business is susceptible.

“You better have some reserve for when these downturns come,” he said. “Apparently what’s happened to some businesses is they haven’t been prepared for the downturn.”

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