By GUY C. DENECHAUD

Business lending by financial institutions is a key component of the region’s economy. Whether the size of the loan is large or small, it can often make the difference between being able to take a company to the next level or remaining hamstrung by limitations in staffing, inventory, location or equipment.

Commercial lending is an important part of the business for many area banks and other financial institutions. The commercial sector needs a variety of financial products to fit its needs including mortgage loans, construction loans and loans to purchase specialized equipment for manufacturing, deliveries, communications or data storage. Some loans are, by nature, more risky than others. For these, sometimes a loan guarantee from the Federal Small Business Administration (SBA) can provide the additional security a bank needs in order to make the loan.

Banks serving the Upper Valley’s business community include community banks such as Ledyard National Bank, Mascoma Savings Bank, Lake Sunapee Bank, Claremont Savings Bank, Randolph National Bank and Wells River Bank. Larger financial institutions include Chittenden Bank, TD Banknorth and Citizens Bank. Credit unions also offer certain types of commercial lending.

The regional market remains strong for commercial loan demand, said Grant MacEwan, senior vice president of commercial lending for Mascoma Savings Bank.

“Our larger loan requests are usually for commercial mortgages, with a mixture of refinancing, new construction and purchases,” MacEwan said. Recently, Mascoma helped fund construction of the first building of the Gateway Office Center, which was completed this summer on Route 120 in Lebanon.

“We are also seeing more requests coming from outside of the Upper Valley,” said MacEwan. “This is due, in part, to the fact that larger banks do not have as strong an appetite for loans at this time, so their customers are coming to Mascoma and other community banks for these services.”

Mascoma recently hired two new lenders to help handle that growth, he said. “Our loan demand remains strong, and our delinquency rates are low and our credit quality is sound.”

Mascoma Bank increased its participation in commercial lending sharply during the last 15 years. With offices divided between New Hampshire and Vermont, it covers the entire Upper Valley region. Mascoma has seven commercial lenders and four business development specialists in the commercial services group. The largest portion of the commercial loans in Mascoma’s portfolio fall in the $50,000 to $500,000 range, but the bank also makes loans that are significantly larger.

Since its inception, Ledyard National Bank has been active in commercial banking, which continues to constitute a major segment of its business. Dan Stannard, senior vice president of lending, said most banks have become more careful about making business loans in the current economic climate, but some changes in the SBA rules have provided reduced fees and better protection for funds that are loaned.

At Ledyard National Bank, commercial loans comprise over 60 percent of its outstanding loans, with the remainder of loans found in residential or consumer applications. Most other area banks that engage in commercial lending claim about one-half of this percentage.

Start-up companies are sometimes considered risky, because they lack an established track record and often have few assets on which to base a loan; in today’s economy, few banks feel they can afford to take that risk except under unusual circumstances. Other business situations are particularly attractive lending candidates, even in a soft economy.

“We see a number of smaller high-tech companies in the Upper Valley, in part due to the proximity to Dartmouth College and the associated Thayer graduate school, that can produce significant value-added services that rely upon special engineering techniques or strategies,” said Stannard. “Today, a company with a good process can sell both domestically and internationally to a ready market.”

Sherwood Moody, president and chief executive officer of Claremont Savings Bank (CSB), said the century-old bank focuses the majority of its commercial lending within an approximate 20-mile radius of Claremont, NH, a city that is experiencing healthy growth in spite of the economic downturn.

“We have a staff of four in the commercial department, and there has been plenty of activity in the business sector that continues to grow,” Moody said. “We don’t think the end is in sight of the growth cycle, and between renovations and incoming businesses, the demand for commercial lending in and around Claremont has been growing.”

CSB’s loan portfolio includes financing to cover a broad range of business activities, from small loans to help buy a key piece of equipment, to multi-million dollar loans to finance a new facility.

Joe Boyd, senior vice president and loan officer at Randolph National Bank, said the commercial side of the business has been growing, and that inquiries from the Quechee, VT area have been a bright spot. With a comparatively new branch in Quechee, Randolph National has eight branches and a history in the region that goes back to 1875.

“We are seeing more demand from companies that are viewing the current part of the cycle as an opportunity to, in some cases, acquire real estate, and more commonly to restructure their debt,” said Boyd.

“Many local businesspeople see us as their local bank, and dealing with local financial institutions seems to be back in vogue,” Boyd said. “We believe in relationships, not just transactions.”

Merchants Bank, which is more than 150 years old, has been doing business with commercial customers for nearly all of that time. It has 11 commercial lending specialists and 34 branches in towns throughout Vermont, including Upper Valley branches in White River Junction, Thetford, Springfield and Bradford.

Ed Childs, the commercial loan officer who covers is this region from the Bradford, VT office, said Merchants is seeing an influx of deposits as a growing number of people want to bank closer to home. Community and regional banks are the beneficiaries of the shift, and are in a stronger lending position due to this trend, he said.

Larger banks such as Citizens, TD Banknorth and Chittenden Bank also serve the region’s commercial loan needs. To serve businesses with international connections or aspirations, such financial institutions often have easy access to products and services such as the foreign currency exchange and international letters of credit that assure payment or performance. As the global market beckons, being able to do business internationally can make the difference between a company that struggles to hold its own, and one that needs to hire more workers and plans an expansion.

Chittenden Bank has been established in Vermont for more than a century, and has long offered a range of commercial loan products. With more than 50 branches, Chittenden is widely represented in cities and towns throughout the Green Mountain State, serving Upper Valley customers from offices in Randolph, Springfield, White River Junction, Windsor and Woodstock. The bank serves a range of business clients in the region.

The demand for commercial loans has remained strong in spite of the economy during the last 18 months, with inquiries primarily driven by the need for mortgages, equipment and working capital, said Kim Whalen, a commercial banker at Chittenden. The bank provides small-business loans, commercial real estate loans, commercial and industrial loans and lines of credit, with loan amounts ranging from $10,000 to more than $20 million.

Some credit unions also offer commercial loan services. The Upper Valley Credit Union is one of the few in New Hampshire that offers commercial loans, according to Steve Bentley, president and chief executive officer.

“Although we are not as active as some banks in commercial lending, as we are limited by state regulation, we primarily offer loans for the purchase of equipment, commercial real estate and investment properties,” said Bentley. “These loans made to businesses are in excess of $50,000.”

The commercial loan portion of a credit union’s portfolio is limited by regulation to a maximum of 12.25 percent of its total assets, he said. “We are uniquely positioned to work with the small borrower, often times with loans that the larger banks may deem as unprofitable for them,” said Bentley.

“The participation of credit unions in the commercial sector could change in the future, as Title II of the Credit Unions Regulatory Improvements Act would increase the member business lending cap for credit unions and this would help to promote economic growth,” he added.