Just had an interesting marketing meeting here in my office. It got me thinking about who and what industries or job sectors are safe bets right now. The economy is different than the last 10 years for sure, but no matter what the R's tell us, I think that unemployment is finally starting to shrink. It stands to reason that banks must be making commercial loans, because they have to make a profit.

Who are the banks betting on right now? I don't mean people with good credit, who have a solid banking history. I am talking more about what job areas do banks feel comfortable with lending to?

A Vapor Bar has opened up on the corner of State and Capitol in Olympia, would a bank look favorably on this kind of thing? I have no idea what it is but there looks to have been some significant outlay of cash to get it started.

A custom cupcake shop? What if they said it was "organic" cupcakes?

If a person comes to a bank with a good prospectus, market study and other investor type documents how much scrutiny is applied to the actual industry or service in comparison to the scrutiny of the person or start-up applying for the loan? In a nutshell do good people with bad ideas get preference over regular people with good ideas?

Lots of questions but whenever we have a marketing meeting I always end up with way more questions than answers.

Interested to hear what the members of this board have to say, knowing that we are spread over a variety of local businesses and industries.

I sure see more hydroponics stores than a few years ago.
Jim Cramer, who seems to be right more often than not, thinks the market is set to soar. He points of early signs of a housing rebound a solid auto manufacturing base and signs of pick up in many areas of the economy. Time will tell.

There is a hydroponics store about 4 blocks from the Vapor Bar here in Olympia. I don't know too many people who shop there, but I assume that they do good internet business as the store appears to be fully stocked and gets stocked frequently.

WTF is a Vapor Bar? Sounds like a place to huff gas and paint.

Or medicine...

I'm assuming this is the same thing you can find in Vancouver, BC... allegedly.

Those are good insights FP. Seriously.

I had a meeting this morning with a client who is in the development stages of an ALF. We spoke about how that market and the health care market are two sectors that will continually see growth as people just keep getting older and older.

Three out of five new businesses will fold within 2 years. One of those two will usually make it to 5 years. This is what I have been taught for the past 20 years, and it is pretty much reality.

For start-ups you need to have operating capital, CASH. Don't put in your business plan that some of the money you want to borrow will cover your salary for the first year. If your business gets up and running right of the bat, save that money, don't go buy a new truck, or house, or toys. That cash belongs to your business, and if it grows rapidly, it will need that cash to expand.

I could go on.... I see smart plans, and very weak ones. Best business plan ever was 2 pages. Business plans are meant to be a living document, adjusting as time goes on.

Four stages of the business cycle.
1. Wonder! "Wow, it would be pretty cool to set up a vapor bar. I found this equipment on Ebay and bought it. We'll make a million!"

2. Blunder "Holy crap, this isn't going like I planned. Employees are a pain. B&O tax? Every where I turn there is another regulation..."

3. Thunder " Things are really clicking along. Been able to sell franchises to Andy's organic turkey turd vapor bar all over the west coast. Those suckers in CA really fell for it. This business is like owning my own printing press. Million? Billions Baby!"

4. Plunder "The thrill is gone. Time for me to retire. Wonder what I can get somebody to pay me for the business."

FP stated---Thirdly, these coffin dodgers are going to do everything they can to bitterly cling to life and overstay their fair share of time on planet Earth, so something health care related. Or even health food or any other gimmick that will make these fossils think it will allow them to hang around for five more minutes to further ruin America, over-consume resources and annoy the younger generations.----



Remember this because you'll cling to the last rung yourself, what a callous, shiatty, self absorbed. childish thing to say. Remember what you said above when death comes calling to your family! Asshole!


Fishy

Unfortunately I took the homes of a crabber, and a principal timber management firm last year. Next week I will own another house, car wash and a defunct casino, or at least my bank will. I may end up taking a few more things this year, based on what I am seeing right now.

One business failed as the result of the death of a principal (no life insurance).

Another due to a dysfunctional partnership. (know and trust who you get into business with.)

Finally, the others were brought down by changes in regulation, (smoking ban) that tanked the person's primary income source and took down their pet businesses. Had they banked their earnings instead trying to leverage them in pet businesses they would have been able to get rid of an number of items in a timely manner, and they wouldn't have had so much debt. Pet businesses are a distraction and a killer of primary businesses. If something is working for you, concentrate on that and nothing else.

Sad thing is that these aren't nameless faceless individuals. These are people I've known for 10-15 years. One of them offered me a cup of coffee and shook my hand when I went over to pick up the keys.

All good points, but at this point in history, pretty much anyone who is going to start a business has the cash or means to the cash to get a bank interested.

I wonder about loans on capital improvements for existing businesses? What sectors are showing enough growth that banks would look at a going concern and loan them money to make improvements without the cash backing? Will they? My guess is no, and that is leading to my point which is money is really "cheap" right now, but hard to get unless you can prove you don't need it. Another point is that there is cash out there, but what causes people to move it into an improvement or new venture?

Bernanke has promised to keep the IR at 0% for another long while. I can't see how this helps smaller regional banks, why would anyone want to make a deposit or pay off a note at those rates? What does the fed rate do to these smaller banks? The way I see it is with reduced deposits, there is no reason for the bank to make more aggressive loans as there is a ratio that they need to keep for reserves/long term loans. I am sure there are huge holes in my logic, I just have been pondering this stuff today.

Thats clear.

But, the folks who are holding onto the cash right now are unwilling to spend it, due to some factor. The fiscal conservative side and the personal side that sees projects routinely put on hold tells me that it is the unpredictable nature of taxes and regulation in our country. Mostly regulation.

IMO the markets that are seeing the best growth right now are the ones with smaller regulatory hurdles.

Wow FP, if they were handing out Hitler Youth uniforms you would be first in line IF you saw personal power and wealth for yourself.

Before the market tanked the Gen X'ers I've ever worked with, on average, all felt they were superior to others, like you, and didn't need to prove themselves and should have come right out of college and become the CEO. All very self absored little aholes who rarely lasted long and the ones that did had some hard lessons to learn first. Pick your phsychosis.....they are the reason the Gen Y's were put on Ritalin.

Now the Gen Y's so far seem to have some respect for their elders although they don't know much past Facebook and Twitter and taking all of that crap seriously.

As far as healthcare and the Baby Boomers for the most part I think you'd be a bit late in the game as we were hearing about that upcoming retirement market 20 years ago. A much tougher market with plenty of competition now. However, healthcare in general, especially IT wise, is going gang busters.

Myself I've been investing heavily in the market and a decent chunk is in the banks themselves. And that one is doing pretty dang good right now.

"A 0% interest rate is supposed to deter savings, so you spend the money now and stimulate the economy."

It's had the opposite effect. Corp america is sitting on more cash now than ever before.

All good points, but at this point in history, pretty much anyone who is going to start a business has the cash or means to the cash to get a bank interested.

No, we get folks in regularly who have a dream but no cash capability to put it in motion, unless you are a "green business" that has Patty and Maria as friends. Look at the "new" business up in Satsop. Another Solindra in the making based on what my clients are saying when it comes to getting paid from them. They have no market for their product, yet Patti & Maria helped get them a nice USDA loan. Go figure, people don't need any new wood if there isn't any building going on.


I wonder about loans on capital improvements for existing businesses? What sectors are showing enough growth that banks would look at a going concern and loan them money to make improvements without the cash backing? Will they? My guess is no, and that is leading to my point which is money is really "cheap" right now, but hard to get unless you can prove you don't need it. Another point is that there is cash out there, but what causes people to move it into an improvement or new venture?

Doing a loan for an HVAC company, a recyclying company, a charter fishing boat, and a few others, all new business. Might be looking at a sporting goods mfg that everybody would recognize if they are an active bow or rifle shooter. Profitabilty helps, as does retained earnings, solid net worth, and assets worth something. Got this? I'll lend to you. I'll also have you sign a personal guarantee, Corp or no Corp.


Bernanke has promised to keep the IR at 0% for another long while. I can't see how this helps smaller regional banks, why would anyone want to make a deposit or pay off a note at those rates?

If the choice is to earn 0.75% on a 12 month CD orpay 6% on a loan, many folks will choose to save money and pay down debt. Doing so they would have just made a return of 5.25%. We caution them to retain some cash, and not to liquidate all debt. Reduce debt that gives you the most cash flow back in the form of cancelled payments, short term debt.



What does the fed rate do to these smaller banks? The way I see it is with reduced deposits, there is no reason for the bank to make more aggressive loans as there is a ratio that they need to keep for reserves/long term loans. I am sure there are huge holes in my logic, I just have been pondering this stuff today.

The Fed sets the rate which is the cost of borrowing money overnight, or conversely, investing money overnight, minus a spread. We have seen the opposite in the direction of deposits, they grew as people migrated out of large institutions. It continued to grow as various businesses prosperred, somewhat. We have roughly $86 million in excess deposits as of 9-30-11. We're getting didly squat on that, so that is an incentive to put that to work. We would rather be earning 5.5-7.5% in a commercial loan than getting 0.01% at the Fed. Our loan to deposit ratio is about 86% now. We have been as high as 104-105% (we can leverage our investments, gov securities & muni's, or pledge govt guaranteed loans so we can loan more). We want to put that money to work, and we are seeing sectors improve. All is not gone to hell.
Hope this banker's perspective helps shed some light.

"Ahh the "Greatest Generation," selflessly fought in WW2 and then lived within their means providing the prosperity that the baby boomers enjoyed their whole lives. What did the boomers do with it? Refused to fight in Vietnam as soon as they came of age and then made damn sure that the government didn't fight another war until they were far too old to have to fight and then promptly sent their children into Iraq and the next generation into Iraq AND Afganistan, meanwhile the whole time racking up a huge deficit as they lived past their means. Well the "Greatest Generation" doesn't care too much for the Baby Boomers... "

FP please tell me if the baby boomers refused to fight in Vietnam who the hell were all the boomers who were killed there. i lost many good friends there and resent what you are saying. every war has people that are against it, it just happens that Vietnam was the first TV war.
boomers have kept this nations great and now that is your turn all you do is whine and snivel about it.

"Thanks for proving my point that we ain't going to step up and take care of the boomers like they seem to think we will."

Believe me. No Boomer is counting on you. What we see is no work ethic, no brains, yet a strong sense of entitlement. Overall a spoiled worthless generation.

"The only reason that this country didn't break down 15 years ago is the tech sector, mostly ran by those Gen X entrepreneurs who went right out of college (or skipped it altogether) to go straight to CEO."

Ah, a revionist historian with no clue. Pulled that one right out of your a$$ just like a Gen X'er. Next we'll here how you helped invent the Internet. Isn't it comb you hair time or something?

what an [Bleeeeep!] hole

Without going into the topic at hand, I'm sure it is baby boomers who are calling FP an "arsehole" for talking smack about boomers, who are also talking smack about the generation(s) after them and feeling perfectly justified in doing so...and are being just as big of arseholes.

Fish on...

Todd

I'd rather not point fingers at whole generations. That is too much of a "generalization". Individuals, yes.

Yes, there are some nuggest of truth out in what FP and others have said, especially as to the actions of many individuals I've come into contact with from all generations, but the wholesale labeling of generations as pompous, arrogant, etc, is just plain wrong.

Nice replies. I agree about the paper tiger up on the hill in SDP. The green pork Patty brought home has funded a small amount of work for me. Now most of those projects are defunct (when companies realized that they were going to put into motion an unsustainable business) but my name is in the public record for some of them and I still get the weekly calls from vendors and contractors asking about when they will start up.

Regarding the loans you are currently working on, they point a bit to what I see. Service industries are doing okay, HVAC, mechanics, plumbers, etc. Are these the sectors improving on your end of business loans?

It is good to hear that the deposits have gone up. That bodes well for the recovery as the smaller banks have the capacity to move money quickly as firms begin to show profits and can look to expand. I understand that you are actively looking to put the money to work, is there a point that the deposits get so high to force bank policy changes as to individual parameters for a loan?

A serious question for Dogfish as a lender. How do most of these strip mall joints survive? I mean how much revenue can a candle or aroma store generate? My only conclusion is that they are tax shelters.