Ed Connolly, an Ellicott City liquor store owner, hasn't forgotten the reaction when he asked his banker for a $25,000 line of credit. "I was laughed at."

He's not alone. Business people across Maryland have the sound of "no" ringing in their ears. The "credit crunch" is here, and it's not going away any time soon. Bankers, the life of the economic party during the 1980s, have turned stuffy again.

"There used to be a time when you would walk in and talk to a loan officer and walk out with a loan," Mr. Connolly, co-owner of Jason's Liquors, laments. "Now they just open up the manual. They're just a glorified bank teller, in my view."

The credit crunch is difficult to quantify. It takes many forms, and even the Federal Reserve has only the crudest tools to measure it.

But businesses recognize it in the extra paperwork that accompanies even the most straightforward loan, and in the increasing demands for appraisals, audits and collateral.

Small businesses are "spending more time looking for banks than looking for business. Normal operating credit is just not available," says Howard Groebel, a Rockville lawyer who specializes in business finance.

To some extent, tighter lending standards are a long-overdue return to financial sobriety after the savings and loan and banking debacles of the past several years. But even the guardians of the banking system wonder whether the pendulum has swung too far.

"At first we thought it was a reasonable response," says Joseph R. Clyne, a spokesman for the Federal Reserve. But sometime during the first half of 1990, the Fed "came to the conclusion there was a little more tightening than needed."

Not much has changed since then, he says. Total commercial loans were down 4.9 percent from June to July and 4.3 percent from July to August.

Still, it's hard to say how much of that decline can be attributed to tighter lending standards. The credit crunch is so intertwined with the recession that even banking experts can't tell where one leaves off and the other starts.

Whether the credit crunch is the cause or the effect of recession, Maryland businesses are feeling the pain. From manufacturing to retailing and from high technology to real estate, you can hear the howls:

* "We always had a very good credit rating," says Carl G. Hecht, president of U.S. Tag & Label Corp., a Baltimore manufacturer, "but the banks are very, very sticky. They won't even talk to you, even if you sign your personal name. . . . We deal with some of the strongest banks, and they are all that mean."

* Chip Smyth, who owns a jewelry store in Ellicott City, says getting credit these days involves "more paperwork, more signatures, more to-do about everything."

* Al Grimes of American Personal Communications, a Baltimore-based cellular communications consultancy, says, "We're finding that unless a deal is almost a no-brainer, banks are not yet in thelending business. . . . They all made some bad moves, and now they're holding tight even when they have a good deal in front of them. They're all afraid. It's really ugly out there."

Not every business echoes these sentiments. For instance, at Prosser Co., which designs and builds chemical process plants, chief financial officer Jim Prosser says flatly: "We do not know of any credit crunch."

Many auto dealers, whose financing needs are often met by manufacturers' finance subsidiaries, feel only indirect effects. In businesses such as trucking, where the recession has curbed expansion plans, there's been little reason to ask for a loan.

And for larger companies with strong balance sheets, borrowing is less painful than it has been in years. The reason: Interest rates have dropped during the recession.

"We have no problem in terms of borrowing money for our normal business," said Louis Denrich, chief executive of Valu Food, a Baltimore-based regional grocery chain.

However, Mr. Denrich said, the company is feeling the effects of the crunch in an indirect way.

Plans to open new locations have slowed because developers )) can't get loans to build shopping centers, he said.

At March Funeral Homes in Baltimore, Vice President Erich March faces a similar problem.

His bank didn't hesitate to finance a purchase of new limousines and hearses. But it has let Mr. March know it would prefer not lend money to buy land for a new cemetery.

He says, "Real estate is a bit of a no-no right now with a lot of banking firms."

No industry in the Baltimore-Washington region has been more severely affected by the credit crunch than commercial real estate, which already was beset by a space glut and the well-publicized bankruptcies of some major developers.

Bankers are looking at projects of all kinds more skeptically, even when they seem to be perfectly solid deals, said Bill Struever, president of Struever Bros, Eccles and Rouse Inc.

"It's definitely a lot tougher . . .," Mr. Struever said. "It's been getting tighter in terms of equity, loan guarantees and preleasing."

Amid the sluggish residential market, bankers are also taking a tougher line with homebuilders.

Banks have long wanted builders to sign personal guarantees for loans, says William J. Kerwin, president of WJK Construction in Olney.

However, Mr. Kerwin adds, builders with close ties to a bank's management often were exempt from those requirements.

"A lot of these fat cats were able to borrow money just because they needed it and the property itself was the guarantee," he says.

No more. Even the fat cats have to make themselves personally liable for debt, he says. "If you default, they come after you personally. They take your collateral."

Much of the perception of a credit crunch results from the growing conservatism of banks and thrifts. Business owners accustomed to dealing on a handshake with good old Charlie Checkwriter at No Money Down National Bank are finding that Charlie's been fired, the bank is desperately trying to clean up its books and there's no money to lend.

So the owners take their business down the street, to a bank that has plenty of capital. There they find there are no liberals left in the banking business.

Instead, they will be sitting across from an old-fashioned banker like Bernard Malinowski, who will tell them that a bank is "an institution of public trust" that is "not in the business of being a risk-taker."

Mr. Malinowski, executive vice president of Commercial and Farmers Bank in Ellicott City, says his highly rated, conservatively run institution has money and is looking for opportunities to lend. But, he adds, "As we look for good loans in a recession, they are harder to find."

Having been burned by slow-selling collateral too often, banks are scaling back their evaluation of what a borrower's assets are worth. At his bank, Mr. Malinowski says, certain types of collateral -- particularly real estate -- that once were accepted at the price the borrower paid are now being counted for 10 cents on the dollar.

Some larger banks are restricting their commercial lending to larger corporate customers, further limiting the opportunities for smaller businesses.

H. Victor Rieger Jr., executive vice president in charge of senior credit at Signet Bank/Maryland, says, "It's not so much a credit crunch as it is financial companies targeting the market they want to deal with."

Signet, he says, is looking for customers with $10 million to $100 million a year in sales. With smaller companies, the cost of monitoring their progress is "prohibitively expensive," he adds.

With the increased cost and decreased availability of bank credit, many business people are turning to other sources.

Jim Pearse, the mid-Atlantic representative for California-based Fremont Financial Corp., says commercial finance companies are making a comeback after years of watching banks take over their territory.

That's a mixed blessing for small businesses. "We take a lot of credit risks so our interest rates are much higher than a bank," he says.

Fremont lends on the basis of what it can recover on easily liquidated collateral -- mostly inventory, equipment and accounts receivable -- and many types of companies don't qualify, he says. Still, he adds, about 60 percent of his customers eventually "graduate" and can return to cheaper bank financing.

Other companies are looking farther afield for capital.

Micro Systems Solutions Inc., a Hunt Valley computer systems company, currently has a $500,000 line of credit with Maryland National but the bank is trying to renegotiate its terms, says company President Michael Lang.

After receiving a chilly reception at other banks, Micro Systems is considering issuing more stock. The company is casting its net internationally and has had some nibbles from European venture capitalists.

"Europe is a lot more friendly," Mr. Lang says. "The European venture people are still intrigued by U.S. technology and want to get represented. They're looking for opportunities over here, and they have looser investment guidelines" than domestic venture funds.

Still, most businesses don't have such exotic options. They simply must bear the credit squeeze.

Consider Billy Martin, owner of Martin Seafood in Jessup. The annual renegotiation of his credit line used to consist of the branch manager asking how much he needed.

Now, the bank requires an appraisal of his property and an audit of his books -- both at his expense -- and will no longer lend to him at the prime rate.

On top of that, he says, "they're saying if you want to increase the line of credit, you have to put up more assets."

Still, he plans to stick with his current bank. Mr. Martin, who has operated his wholesale business for 30 years, says, "There's no one out there who's going to give you a better deal."

Reporters Leslie Cauley, Kim Clark, Edward Gunts and Ellen James Martin of The Sun's Business section contributed to this article.

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