Private business facing another year of cloudy fiscal outlook

It’s often been said it takes a lean dog to run a long race. And with that in mind, staying lean is a likely survival strategy for Mississippi’s private businesses heading into 2013.

Even companies with fat cash reserves are keeping lean, preferring to horde their money until signs of an economic turnaround become clearer. They’ll stay that way until they see more demand for their goods or services, says Bill Barron, executive managing director of private banking for Metropolitan Bank, a four-year-old Ridgeland and Memphis-based banking company that specializes in business lending.

“Companies are holding more cash than historically has been the trend,” he said in an email. “This is owing to very slow growth in demand and some hesitancy on their part to commit to large capital projects until they have clearer visibility on the economy.”

On the Coast, banker Chevis C. Swetman said loan demand is up slightly at The Peoples Bank, a Biloxi commercial bank for which he is chairman and CEO. “It’s not up as much as we’d like it to be,” said Swetman, whose bank reported a first quarter rise in loan volume of 5.3 percent over the first quarter of 2011.

He said he doesn’t expect to see loan demand go higher next year.

“We are in such a weak recovery I don’t see anything that’s going to drive it up in any spectacular fashion.”

Swetman isn’t complaining, though. Two years ago his loan volume fell off 12 percent. “Last year I was expecting it to be off 5 percent but we were actually up 5 percent.”

Mississippi’s banks have money to lend at historically low rates but the business customer who ultimately signs for the loan is one who really has to want to borrow the money, the Biloxi banker said.

If he is going to borrow money to bring an employee on to the payroll at a salary of $40,000 a year, the employee “has to make him about $60,000 in gross income,” Swetman said. “If he doesn’t, he is not going to hire him.”

It’s been four years since the start of the economic slump, yet the fears of the business borrower have not let up, according to Swetman and Metropolitan’s Barron.

“He is uncertain about what is going to happen and doubts Congress is going to do anything” to improve the economy, or worse still could stay idle and let the economy fall of a fiscal cliff, Swetman said.

Barron’s view? “Potential borrowers still remain cautious,” he said.

SCORE counselor Dr. Lou Finkle would call Barron’s assessment too optimistic. “Very low confidence level,” said Finkle in describing what he is seeing on the Mississippi Coast.

In addition to providing guidance to other businesses, Finkle is co-owner of Gulfport’s School & Carnival, a provider of products for school fairs and other school entertainment events.

“We have lost more than two-thirds of our vendors,” he said in an email.

Of the dozens of business partners with which School & Carnival shares resources, only one is showing growth in productivity, Finkle said. “Two others have asked me to buy their inventory to carry in my stores. None of us plan on increasing employees regardless of who is elected as president.”

The outlook provided by Jackson business coach Jim Finley is not quite as bleak as Finkle’s.

“I think we’re in an upturn,” said Finley. “It’s kind of hard to say that when so many people are suffering, but so many things are place — the cheap cost of money, the Fed’s promise to hold rates at current levels to 2015. All that sends a strong signal that… now is a good time to borrow to meet your needs.”

Finely said it’s no accident that Gov. Phil Bryant has named the energy and health care sectors as key economic growth areas early in his administration. Entrepreneurs looking for opportunities in Mississippi should key in on those sectors, he said. “I would target anything associated with energy,” said Finley, principal of the Growth Coach and an advisor to Jackson State University’s business incubator the Mississippi e-Business Innovation Center.

Metropolitan’s Barron agreed that health care will be an economic leader in the region next year and the years that follow. “Health care, both from a provider standpoint and from the perspective of the rapidly growing health care support and infrastructure sector, look strong to us in 2013 and beyond,” he said. “Uncertainties in the political climate may temper those results, but we would still expect health care, along with transportation, logistics and potentially multi-family development, to look good in the coming year.”

On the lending front, demand for capital is strong in professional services and transportation sectors, according to Barron. “Attorneys, CPAs, physician groups continue to be a strong source of demand,” he said. “We also have begun seeing large fleet truck and trailer financing requests as that sector is typically a bellwether for improving conditions, and it is experiencing nice growth.”

On the Coast, Swetman of The Peoples Bank worries about gasoline prices continuing to fluctuate into the new year and adding to uncertainties over transportation costs. Much of the bank’s lending is to the hospitality industry, especially hotels and casinos. Frequent escalations in gas prices spell trouble, he said.

“A lot is going to depend on transportation,” Swetman said. “We’ve made lots of loans to hotels and motels. I’d hate to be building one now because of the high cost of gasoline.”

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