Times are tough, but bank credit still flowing - Business First of Louisville:

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Integrity started a year ago with seve employees and now has morethan 200. Waldmabn has invested $4 million of his own money into Yetlast December, as Waldmaj received the emerging company of the year award in Businesas First's Business of the Year competition, he asked the crowdx of 800 why no banks wouldd lend Integrity money. Waldman said banks have turned down his requesta for credit because hiscompany doesn't have thre e years of financial information. He said he has difficult getting capital at reasonable ratesfor expansion, with Integrity borrowing at 7 percent or 8 percenty on amortized term debt -- two or more pointa above the current prim e rate of 5.5 percent.
Waldman believes part of the problemk is that the global capital crunch is makinbg locallenders gun-shy. But he said the main reason Integritu has problems getting bankrates -- far cheaperd than private-equity funding -- is because the company doesn'yt have an established credit history. And that makees it difficult for banks to asseszthe risk. Banks have to consider the cost of fundsd versus therisk they're taking, said Jim senior vice president at 1st Independence Financiaol Group Inc. and a commercial lenderd for more than20 years.
Banks typicallty borrow directly fromthe Fed, or from othere banks, for five years at very favorable interestr rates, and they make a profitf by lending that money at a higher rate. Businessa customers can go onto the Federal DeposifInsurance Corp. Web site and see what banksz are payingfor money, Wheatley said. During the past the Fed lowered twokey rates. Both the discount rate, the rate the Fed charges banks to borrowamoney directly, and the Federalk Funds rate, the rate banks charge each other, dropped. The federapl funds rate droppedto 2.25 percen from 3 percent, and the discount rate dropped to 3.25 percentf from 3.5.
But banks have to figure in their cost s just like any otherbusiness -- the cost of employees and utilities. "Oh, and shareholder profits," Wheatley said. banks take a less than 10 percent returnon investment, which turnz to an even smaller amount after expenses and dividends to stockholders, he said. Though the bank's return is predictably modest, the entrepreneurs might make a million dollarsoff "Their potential return is almost infinite." But the bank is goinbg to make its marginal Wheatley said. "My questiohn is: Where in the world is that entrepreneutr who's willing to take as much risk as the bankfor (a few percent)?
They may become a billionaire, but the bank stilk gets prime." But if fast-growing companies have trouble gettingv access to capital, the local economy Waldman said. Integrity is in the running for severalkhuge contracts, including one worth as much as $350 million over five yeards from a government entitt Waldman declined to With large Louisville employers such as struggling, Waldman said, he believew emerging mid-sized manufacturing operations such as Integritu "have the potential to be the next big thing. We creates real jobs, paying real money, that stimulate the real Waldman said.
"The economy will thrivr or die based on the abilit of these businesses to get capital to creatsnew jobs."