low interest rates

While low interest rates are causing a boom in home sales and commercial lending rates are not the same, bankers say business lending is in a positive mode too. 

Gabe Baldwin, president of BankPlus Mortgage in Jackson, explains that commercial lending rates are completely different product lines of business. “Mortgage rates follow the markets in and around mortgage-backed securities and typically mirror the ups and downs of the 10-year U.S. Treasury yields. Commercial lending rates are generally tied to the prime lending rate and determined by the credit worthiness and strength of the borrowers.”

However, businesses looking to expand are helped by the low interest rate environment, making funds cheaper to borrow. “Borrowers are able to refinance existing debt and increase their monthly cash flows. This excess cash can also be used within their operations for additional labor or expansion of facilities,” Baldwin said. “We have also seen established businesses upgrade software systems and make other various improvements by taking advantage of the lower rate environment.”

Wes Fulmer, with The Peoples Bank in Biloxi, said, “With rates at what I would think is an all time low (I would have said this a few years ago but would have been wrong), there is opportunity for businesses to expand, make improvements and capital expenditures at rates that make servicing additional debt manageable for most established and growing businesses. Some of this is happening but there remains some uncertainty in where the economy is headed which seems to be slowing down making decisions on taking on additional debt.”

A banker for 36 years, Fulmer added that based purely on the cost of credit, this would seem to be a very good time to expand. “Unfortunately the low cost of credit is being off set by increased costs to buy products, build infrastructure and expand production. If a business is relying on any material, inventory or supplies produced by other companies then the slowdown in the supply chain has to be taken into account as they make a decision on expanding their business.”

At the Bank of Anguilla in Sharkey County, Vice-President Kit McCoy says a lot of their businesses experienced growth in 2020 due to customers buying local during the pandemic. “Our very rural community relies heavily on our local grocery store, flower and gift shop, hardware store because neither Sharkey or Issaquena counties have a Wal-Mart or any other major retail distributor. Those businesses that were able to continue to thrive in 2020, should analyze and then capitalize on what worked. If opportunity for growth is there, this is definitely the time to take advantage of the lower interest rates.”

Through the end of April, BankPlus had extended over 6,800 loans through the two Small Business Association PPP programs, according to Baldwin.  “These loans were made to businesses throughout our footprint,” he said. “My personal view on our economy is very optimistic. We are seeing housing sales at or near all-time highs. When people buy new homes, this tends to spread dollars throughout many layers of our economy. Many jobs are created along with many industries benefiting from a strong housing market.”

Fulmersays that most of The Peoples Bank's customers are recovering from the pandemic at a slower pace than they would like. “It does not appear to me to be a lack of demand but a lack of being able to adequately staff their businesses to meet the demand. This looks to be occurring in almost all types of businesses but is especially evident in service businesses such as restaurants, bars and hotels. Even in banking we have had a much more difficult time filling entry level positions.”

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