Businesses here aren't taking out lines of credit to cover expenses tied to growth as much as they were before the recession, local banking executives here say, but they're optimistic that area of lending will improve in the coming year.

Businesses here are reluctant to expand their inventories because sales are still down in many sectors, but some are beginning to use their revolving lines of credit again to pay for growing accounts as consumer spending starts to pick up, bankers say.

Linda Elkin, the Spokane-based Northeast Washington region president of Minneapolis-based U.S. Bank, says that financial institution saw a decline in the demand for working-capital lines of credit over the past two years, but that its credit-line utilization percentage was up slightly in 2010. That figure is a measure of how much a business is using its line of credit, she says.

In 2009, U.S. Bank's credit-line utilization percentage of 35 percent was down from the prior year, but that number rose to 40 percent in 2010, she says.

"It will be interesting to see how that continues to increase in 2011," Elkin says. "My guess is that it will, and we've seen preliminary indications (of that) in our January revolving lines."

Elkin adds that one reason she believes U.S. Bank's credit-line utilization was down during the recession was because many of its customers were able to manage their working capital well and as a result didn't need to use their credit lines.

"So, if we see a sustained turnaround, it depends on if the economy keeps moderately improving," she says.

Steve Utt, chief credit officer at Spokane-based RiverBank, says it also has seen a decrease in demand for credit lines, but that lately it's started to see some slight growth in that area of lending.

"We're starting to see that come back a little more and we're seeing clients reporting an uptick in business, and we'll start seeing line utilization and requests for lines increase as a result of that," Utt says. "It hasn't been a dramatic shift—it's very slow and methodical. I think a big part is that clients' sales were so depressed back in 2009 that it was inevitable they would begin filling orders for inventory (again)."

Another Spokane lender, Washington Trust Bank, says it also has seen a slight increase in demand for business credit lines recently.

"As the economic cycle became a challenge, a lot of small businesses hunkered down and managed their costs and cut back on capital expenditure," says President and COO, Jack Heath. "Now, some of those businesses are getting more confident and doing more borrowing, and we hope that's a trend that's going to continue."

Yet, not all lenders here are seeing this trend.

Says Randall L. Fewel, President and CEO at Inland Northwest Bank, of Spokane, "We're seeing less usage on the lines than a couple years ago from our business customers that do have lines of credit with us. Businesses are reluctant."

Fewel says that businesses typically use an operating or working capital line of credit to fund accounts receivable and inventory, and from his observations, since not many businesses here are expanding their inventories and because sales haven't risen much, the usage of such lines has remained fairly low.

"I think the lack of demand for this credit is one of several factors that's telling me that we are still in a precarious economy," he says. "There is a lot of uncertainty, and businesses don't want to take on debt, so that tells me there is a lot of caution."

Fewel adds that he believes there could be a slight increase in demand for lines of credit during 2011, but that such growth will take time.

Unlike commercial real estate loans, which have become much harder to secure in recent years, business credit lines have remained obtainable.

Fewel says he doesn't believe lines of credit have become harder to obtain due to the struggling economy, and because the demand is down, many lenders might be more willing to extend such lines. He adds that since the recession, banks haven't changed their underwriting criteria when it comes to extending a working capital line of credit.

"I don't think (availability) has changed very much," he says. "I think it's no more difficult than it was before, unlike commercial real estate, for example, where underwriting has gotten a lot tougher, but that's not the case for lines of credit. We're still using the same underwriting criteria we always have."

RiverBank's Utt says that availability of credit for a business often depends more on how it will be using the line—whether it will fund continuing growth or use the money to cover the costs of daily expenses so the business can keep its doors open.

"The first scenario is that you need working capital to support your inventory, receivables, and to pay employees and suppliers, and that uses a lot of cash while you're growing," he says. "The other is businesses that have depleted their cash trying to keep doors open and may be struggling or need additional cash to support operations until they keep growing again."

He says that second example is where some lenders are more cautious to extend a line of credit.

Interest rates for revolving lines of credit also have remained fairly low in the past year.

Washington Trust's Heath says the rates for such credit lines are now at all-time historic lows. The rates are variable and are tied to the prime rate, which has remained fairly steady in the last year, at 3.25 percent, he says.

However, he says that because the prime rate has remained so low, many banks have been forced to set interest rate floors so they can remain profitable.

Fewel says most banks have set their credit line interest rates somewhere around 5 percent.

As businesses here continue to recover and grow as the local economy improves, banks here are hopeful to see the demand and usage of working capital credit lines continue to go up.

"Where businesses are using it to grow and expand and fulfill orders, it's extremely positive," Utt says.