Arizona Business Financing: Even as the economic recovery seems stuck in neutral, Arizona business financing is increasing for both large and small firms.

“At Arizona Business Bank, we have noticed a resurgent, but cautious, interest from commercial clients in fortifying their working capital lines of credit and discussing owner-occupied real estate plans,” said Toby Day, president of Arizona Business Bank, which is part of CoBiz Financial, a $2.4 billion financial holding company based in Denver.

Of the bankers asked, all pointed to the bargains available in the commercial real estate industry, particularly the office market, as an impetus for businesses requesting financing.

“This year, the primary requests for financing are coming from businesses that have decided to take advantage of the market to buy buildings or, given their equity position, to refinance their building to take advantage of the low interest rate environment, including some who are taking advantage of the (Small Business Administration’s) new refinance program,” says Dee Burton, senior vice president, regional manager for Alliance Bank of Arizona.

According to a Phoenix Metro report from the brokerage firm of Cassidy Turley BRE, the vacancy rate for the office market stood at 28.3 percent during the first quarter of this year, up from 28 percent at the end of 2010. With vacancy rates still rising in the office market, business owners are finding prices that were unseen during the building boom.

“Current low rates seem to favor leasing, however, decreases in real estate values suggest opportunities to purchase the building at less than historic replacement costs,” Day says. “These factors, coupled with a low fixed-rate environment and increased bank willingness to lend have created a favorable financing arena.”

Depreciation changes included in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act, and the Small Business Jobs Act also are spurring businesses to pursue loans. According to Deloitte, under the two laws all qualified property acquired between Jan. 1, 2008 and Sept. 8, 2010 has 50 percent bonus depreciation; the bonus depreciation for qualified property acquired and placed in service between Sept. 9, 2010 and Dec. 31, 2011 is 100 percent; and for qualified property acquired and in service between Jan. 1, 2012 and Dec. 31, 2012, the bonus depreciation is 50 percent.

“With the bonus depreciation incentives coming from the Small Business Jobs Act, we’re starting to see more requests for equipment financing particularly in health care, such as MRIs, and dental and optical equipment,” Burton says.

Depreciation laws notwithstanding, a number of companies are seeking financing to replace equipment — purchases that have been deferred in some cases since 2008.

“Demand for equipment financing is also increasing in many sectors due to economic conditions moderating and slightly improving and companies being unable to defer capital expenditures for improved efficiencies, replacement needs and near-term projected growth,” says Scott Schaefer, president of Meridian Bank.

Fattening up lean inventories is proving to be another incentive for companies to seek new sources of financing.

“During the downturn, (businesses) were able to generate cash by shrinking inventories and collecting accounts receivable,” says Dean Rennell, Wells Fargo regional president, Arizona Business Banking. “That cycle is reversing now, creating a need for financing.”

Despite signs of improvement, Brent Cannon, executive vice president and director of Metro Banking at National Bank of Arizona (NB|AZ), says loan demand remains tepid due to economic uncertainty and the “weakened state or quality of loan applicants.” He added that the bank forecasts loan demand will “remain somewhat soft in 2011” until the economy shows more significant recovery and unemployment numbers drop.

While the slow economic recovery is causing many businesses to shy away from asking for loans, Day at Arizona Business Bank says banks also have some soul-searching to do.

“Industry wide, banks have been somewhat introspective and the calling efforts (planned sales calls) on clients diminished,” he says. “According to industry trade groups, the number of calls to clients over the past three years has been the lowest since the late 1980s. Increased calling efforts by Arizona banks will be mirrored by decreasing loan problems for the banks — both of which will drive renewed growth in our market. We are optimistic for the mid- and long-term future for our state.”

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Arizona Business Magazine July/August 2011