Bank, Schmank: New Rules of Small Business Finance

Part 1 Where's the Bank Credit?

Why the only businesses getting loans right now are the ones who don't need them.

The point of all that TARP money funneled to banks beginning in late 2008 was to end the credit crunch. And in recent months at least three of the country's biggest lenders have announced ambitious plans to ramp up lending to small businesses this year. Yet, a year-and-a-half after the bailout, as the economy finally seems to be lurching into some sort of recovery, some untold number of America’s millions of small companies are still trying to get their hands on the capital they need.

So are banks back in business … or not? 

Although Wells Fargo, Bank of America and JPMorgan Chase pledged to make significantly more loans this year, it may be easier said than done. Bank of America, for example, lent $3.4 billion to small businesses in the first quarter of 2010, which is actually down from the $3.9 billion extended during the same period last year.

Part of that decline may be attributed to demand, which at Bank of America has only started to pick up in the last few months, according to spokesman Jefferson George. “When businesses are struggling, they’re not necessarily looking to extend themselves further,” he says. 

But what about those who do? “There is ample credit availability right now,” says loan consultant Ed Freiermuth. “For any business that’s qualified. What’s a ‘qualifiedbusiness’? That’s the meat of it.”

Now's the Time to Get Creative

Banks have been given money to shore up their balance sheets and reserves, but even while they’ve been pressured to lend, they’ve also been warned not to make bad loans.

“Regulators are looking over their shoulders saying, ‘Fine, lend money, but if you screw up, you’re going to be in trouble,'” explains Freiermuth. In his experience, underwriters are being much more exacting in their evaluations, and the effect is a contraction of lending parameters. From his perspective, it’s a throwback to “old school” banking, in which bankers gather reams of data and go strictly by the numbers to winnow down applicants to those that have little probability of going south.

From the bank’s perspective, according to Bank of America's spokesman, it’s not so much that the criteria has changed, but the fact that what borrowers bring to the table doesn’t hold up like it once did — cash reserves might be depleted, collateral may have lost value.

However you look at it, the upshot is largely the same. “In essence, the only people who can get credit are small businesses that don’t need it,” says small-business advisor Chuck Blakeman. “Profitable for the last two years, perfect financial shape? No problem.”

Anyone falling outside those bounds is going to have to embrace an economy with new, tougher rules — and become just as creative about finding credit as they were about their entrepreneurial vision in the first place.

_____________________________

Eric Hagerman is a New York-based freelance writer and editor and former senior editor at Popular Science and Outside magazines.

To Lease or Not to Lease

Last year, Valarie Moody needed two costly photo printers for Fodeo, her photo and video preservation shop in Countryside, Ill., but she didn’t want to deplete her cash reserves in the middle of an economic downturn. She was unsure about getting credit or a traditional bank loan, as two of her business credit cards were cancelled out of the blue, one due to a bank closure. In the absence of other good options, Moody decided to lease the printers and found she got lower payments and more buyer protection than she would have expected with traditional bank financing.

"I particularly liked the lease experience because we had a problem with one of the printers, and if we had purchased the printer outright, we probably wouldn't have been able to return the printer as easily," Moody says. "Since the leasing company withheld payment until we were satisfied with the product, we were able to get the seller's attention and return [the printer] after several different software trials failed. The lease was much easier to obtain than a traditional loan, and they guaranteed the equipment."

While bank financing remains elusive for many small businesses, lease financing is a viable, but little understood, alternative. "So many business owners think they have to go to a local bank [to get a loan], and they’re surprised to find there are all these leasing companies out there, financing $500 billion-plus in business equipment each year," says Ralph Petta, interim president of the Equipment Leasing and Finance Association.

In fact, small businesses use computers, trucks, furniture, factory machinery, airplanes and other types of equipment that were purchased through lease financing. For many of these companies, leasing is not just an alternative to a bank loan or credit card debt; it’s a deliberate financing strategy.

"Businesses that can retain or expand their cash and bank lines have the best chance of surviving in this business climate," says Joel Ronan of Atlantic Business Credit, a lease financing firm in Stuart, Fla. "Any credit lines you can establish or expand--be it with vendors, banks or equipment lessors--will allow you more breathing room." Ronan adds that there are many businesses that are failing because of cash flow problems. Some of those businesses may even be profitable, but their cash is tied up in inventory or receivables. Equipment is an alternative line of credit that allows for greater liquidity.

Bank Loan Reject? No Problem
Moody says her equipment lease was much easier to obtain than a bank loan, and leasing industry professionals say that’s no accident. Banks and leasing finance companies are set up differently and are often looking at different criteria when it comes to loaning money. "Generally, equipment finance specialty companies will give greater consideration to the collateral value of the equipment than a bank because they have more specific experience with the equipment and may be better equipped to recover a loss if their customer defaults," says Robert Boyer, president of Susquehanna Commercial Finance, Inc., and chairman of ELFA’s Small Business Steering Committee. "There are some advantages a lessor has on a lease that a lender does not have with a loan in the event of a bankruptcy, so there may be structures that an equipment finance company can use to get a higher level of comfort on a transaction."

In other words, even if your company has been turned down for a bank loan, that doesn’t mean you won’t be approved for lease financing. "Particularly for equipment leases under $15,000, transactions flow freely, even for startups or [companies with] credit scores in the low 600s," Ronan says. "Leasing can serve as a reasonable alternative for bank declines."

In fact, some banks have equipment finance divisions or subsidiaries that offer leasing services to their clients, Boyer says. And currently, as federal regulators have tightened their position on how much commercial real estate lending banks can carry, "they want banks to increase their percentage of commercial and industrial lending," says Erik Dickinson, vice president of equipment finance and leasing at Red Mountain Bank in Birmingham, Ala. "This would be lines of credit and equipment financing." 

Beyond Paying Rent
Unlike leasing an apartment, some business leases are more like loans, so the business actually owns the equipment and can receive tax benefits through its depreciation. (A new legislative proposal under consideration by Congress would allow companies to expense these assets and write them off more quickly than is currently allowed.)

But in some cases, a true lease, in which a business pays rent on the equipment until the life of the lease expires, can make more sense than purchasing. At Women’s Health Specialists in Jensen Beach, Fla., administrator Bill Hughes, CPA, prefers to lease equipment that becomes outdated quickly, such as diagnostic equipment and personal computers.

"Advances in technology usually make the equipment obsolete by the end of the financing term," Hughes says. "Not owning the obsolete equipment at the end of financing does not put you in the bind of having to store or dispose of the old equipment."

Benefits to Enjoy
For companies in a cash-flow crunch, the most valuable advantage to leasing is the ability to hold onto their cash. In most cases, a company can get the equipment it needs with little or no down payment, allowing it to preserve working capital and lines of credit for other uses, Dickinson says.

And unlike the lengthy approval process for most loans, lease transactions can happen fast; many lease transactions under a certain threshold can be approved within 24 hours. "Most equipment finance companies will review credit based on a simple, one-page application if the transaction is less than $50,000," Boyer says. "There are many companies that have higher thresholds, maybe even as high as $250,000 for certain industries. Anything over this application-only threshold will generally require the applicant to submit tax returns or accountant-prepared financial statements."

Even those transactions that require a complete credit package are often processed within 10 days, Ronan says. "Of course the rates are higher, but many times the lease payment is not material when you consider the income the new leased equipment generates or efficiencies it creates in the business," he says.

Finally, leasing can offer tax benefits. For Women’s Health Specialists, the ability to immediately include the total payment as a business expense, rather than writing off only the interest and eventual depreciation of the equipment, is one of the most important reasons to lease, according to Hughes. For instance, "Car leases allow you to write off the entire payment versus interest expense and depreciation," he says.

Pitfalls to Avoid
While scores of business owners successfully lease equipment and enjoy the accompanying tax and cash-flow benefits, many others have had negative leasing experiences. For instance, the credit card machine industry is notorious for problematic leases, Ronan says. "In many cases, a low-cost item, say $500, is leased on a continuous basis at something like $35 per month," he says. "Historically, these leases go on for years with tremendous yields to the lessor. Resentments grow when the lessee understands years later he has paid for the thing several times over. Beware of any company that will not sell but only leases. You are probably going for a long ride."

To avoid similar problems, keep these tips in mind: 

• If you’re unfamiliar with the finance company, conduct a background check. Boyer recommends using Dun & Bradstreet reports or the Better Business Bureau. 
• Before signing anything, find out what happens at the end of the original lease term. For instance, you may have an option to purchase the equipment at a deep discount. Whatever the terms are, make sure they are explicitly determined and in writing. 
• Find out the fees associated with the lease transaction," Ronan says. Some common fees include documentation fees and late fees. "Many quotes with low rates are rich with fees," he says.
• If a down payment or deposit is required with your application, "make sure there are specific terms that spell out the offering being made and what will happen to the down payment if the company is unable to approve the transaction," Boyer says.
  

Raising Finance in The New Economy

Whatever your potential sources of business finance, the changes in our economy and business climate have forced several new common factors on all businesses:

 

1. You should explore several options in detail. The days of simply assuming that your

current bank is the sensible source for your finance are gone.

 

2. Explore the short-term and long-term implications of your chosen finance route.

Short-term cash gains might be very useful – sometimes essential, but do your homework

on the longer term implications.

 

3. Shop around. Finance is like any other business service. The quality of service provided, the details and terms of the package offered and the full cost of the package do vary from lender to lender – don’t assume that all other offers will be the same.

 

4. Negotiate. Again, business finance is no different from other business services.

Don’t accept terms immediately – negotiate. Look at the overall cost to your business and

other factors such as seasonal cash flows. Demand better terms, payment holidays etc.

to suit your business. It’s your loan/finance – negotiate to get terms that favour your

business.

 

5. Prepare your business case well. Have others comment on it before going to your

chosen lender. Include enough information in your plans, proposals etc. to give the lender

everything they need to know to be able to make a decision. If the lender comes back

and requests further information, then you clearly have not enabled them to make the

decision with the information you initially provided. Include information on risks and

how you will mitigate the risks. Present your information clearly and back it up with bank

statements, key contracts/orders etc.

 

6. Provide regular, clear and complete updates to your bank/lender. Provide management

accounts, trading updates. Banks and other investors don’t like surprises. Keep them informed. If your information is clear and regular, the door will be open to finance discussions.

Seven Steps to Sales Recovery

By Vistage member and speaker Russ Riendeau, PhD

Is your sales strategy no longer producing the revenue results you want? Then it's time to inspire your sales team to do more. Here are eight ways to secure new orders and get the most out of your team.

1. Rank the sales team: Keep a transparent monthly and long-term ranking of each sales member. What if the bottom 20 percent of your team was gone in two weeks? Think of something more productive you can do with the money you save, such as hiring a sales trainer, holding a contest, or recruiting better talent.
   
2. Upgrade your marketing tools: Check your sales presentation kits. Are the brochures vibrant, current and accurate? Is your company's competitive advantage well expressed? Is your website current? Do you have a video of what you do that is professional or fun?
   
3. Go in the field: As a business owner or manager, you should commit to making at least one sales call per month with each of your sales team. The consequences of failing to maintain your presence in front of current and future customers is simple: Out of sight must be out of business. Additionally, you'll be able to assess your sales talent pool when you make calls with them.
   
4. Start a sales contest: Create a contest to stimulate quarterly sales. The prize can be an HD television, a vacation to the Caribbean, one hundred $100 bills in a glass case—make it big, visible and public. Fire up the team and see what they'll do.
   
5. Provide sales training now: Provide a sales training session that focuses on how to sell in a fear-based economy. Hire a trainer who has a current approach to jumpstart your team. The $2000-$4000 you spend on the trainer might bring back ten times the investment in new sales.
   
6. Measure sales activities: Start measuring activities that generate sales. These activities can include sales visits, outbound phone calls, text messages, letters, proposals, purchase orders, emails, or attending association functions. Create simple templates to measure every activity of all salespeople to see who is effective.
   
7. Set new quotas: Meet with each salesperson and re-establish sales quotas.

There are two simple, but tough truths about increasing sales. You've got to hold people accountable to do their job better, and measure their activities. It starts with you making the commitment and staying the course.

Benefits of Financing

Did you know 7 out of 10 companies finance business equipment? Plus, the number one reason companies finance is to enhance cash flow.

 

Benefits of Financing

·   100% financing. With financing, there are very little upfront costs. Zero to two month's payments may be due at the start of the finance contract. And, you can cover soft costs such as installation and shipping. Conversely, a typical bank loan does not cover soft costs and may require as much as 10 - 20% down.

·   Tax and accounting benefits. The IRS does not consider Tax Leases (FMV, 10% Option, TRAC) to be a purchase, but rather a tax-deductible overhead expense. Therefore, you can lower your taxable income by deducting the lease payments. Non-tax ($1.00 Buyout, 10% PUT, SD=BO, EFA) are attractive to business owners who want the tax benefits of ownership - use of IRC 179, accelerated depreciation. Consult a tax advisor on the specific impact.

·   Balance sheet management. Because a Tax Lease is not considered a long-term debt or liability, it does not appear as debt on your financial statement - making you more attractive to banks by improving ROA due to a lower asset base.

·   Flexibility. Unlike loans, you can structure payments to meet your cash flow including deferred and seasonal payments. Convenient end of financing options exist too: purchase equipment, return equipment or renew the contract. If you need to terminate the finance contract, a buyout can be figured.

·   Upgrade technology. If your industry demands that you have the latest technology, financing can lower obsolescence risk because you can upgrade or add equipment to meet your ever-changing needs. And, it’s simple with a Master Agreement!

·   Speed. Respond quickly to new opportunities with minimal red tape – less than a loan. Your application can be approved promptly and you can have your equipment quickly.

·   Improved cash flow and forecasting.  Lease payments are historically lower than loan payments, conserving cash for other uses. With leasing, you know the amount and number of lease payments over the life of the lease, so you can accurately forecast cash requirements.

·   Conserve credit lines.  A loan immediately reduces your credit line. A lease doesn’t affect your credit line.

Make Sure Your Dun & Bradstreet Report (D&B) Profile is up to date and accurate

Out of the 1000’s of lease applications we review, the number one thing our customers can do to improve their credit profile is update their Dun & Bradstreet Report. Blue Street’s team of credit professionals will guide you through the simple reviewing and updating process.

As you may know, D&B is a publicly traded company that provides information on businesses and corporations. Often referred to as just "D&B" the company is best known for its "D-U-N-S Number" identifier that is assigned to over 100 million companies worldwide.

It is critical that before you begin the process of leasing or financing equipment that you are confident you have a positive D&B profile on record. The first thing a bank checks when reviewing applications is your company’s D&B profile. Your profile gives the lender a snapshot of both your business and credit history.

How do I know if my D&B profile is up to date and accurate?

Call us. Blue Street Capital will pull your D&B (while you are on the phone) and explain to you how your report looks from a lender's perspective, describing all of the positive and negative aspects of the report and what you can do to remedy any potential problems. We do this free of charge. Unlike a credit report, looking at your D&B report has no affect on your business or personal credit.

Call us at (714) 316-1180 and ask to speak with an account representative.

What if my D&B contains mistakes?

If there are any "negatives" regarding your credit history, don't worry - remember that Blue Street Capital has options for all types of credit. Even the most responsible businesses have credit blemishes that we can work around.

If D&B reflects something negative about your business that you know to be inaccurate, we will explain to you how it can be fixed. Again, Blue Street Capital provides this service free of charge.

What if I don't have a D-U-N-S number?

If you do not have a D&B profile, it's not a show-stopper. But having a favorable credit history listed in D&B will go a long way for you in getting the lowest rates on your equipment leasing or financing. If you are new to D&B we can help you understand how to setup a profile and why this is an important tool for your business.

 

Contact us today for your FREE D&B Consultation!

Economy Jumps 5.6% in Q4/09 as 2009 Ends on a Record Low

Real gross domestic product in the United States increased at an annual rate of 5.6% in the fourth quarter of 2009 over the previous quarter, marking the best performance in six years. In the third quarter, real GDP increased 2.2%.

Nonetheless, fourth quarter GDP fell just short of economists' estimates. Seventy-six economists surveyed by Bloomberg News forecast an annual growth rate of 5.9%, the same as the government's "second" estimate released last month.

The Commerce Department's Bureau of Economic Analysis said the increase in real GDP in the fourth quarter primarily reflected positive contributions from private inventory investment, exports, personal consumption expenditures (PCE), and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The acceleration in real GDP in the fourth quarter primarily reflected an acceleration in private inventory investment, an upturn in nonresidential fixed investment, an acceleration in exports, and a deceleration in imports that were partly offset by decelerations in PCE and in federal government spending, the BEA said.

The economy's end of year surge was not enough to reverse a record poor performance in 2009. For the full year, real GDP decreased 2.4% from the 2008 annual level, making it the worst single-year performance since 1946.

The decrease in real GDP in 2009 primarily reflected negative contributions from nonresidential fixed investment, exports, private inventory investment, residential fixed investment, and personal consumption expenditures (PCE) that were partly offset by a positive contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, decreased.

The downturn in real GDP in 2009 primarily reflected downturns in nonresidential fixed investment and in exports and a larger decrease in private inventory investment that were partly offset by a larger decrease in imports and a smaller decrease in residential fixed investment.

Fourth-quarter corporate profits increased by $108.7 billion to $1.47 trillion. Earnings jumped 31% from the same period in 2008, the biggest such increase since 1984.

Click here to access the Bureau of Economic Analysis report on GDP.

Enhanced Section 179 - Businesses can now write-off up to $250,000

***UPDATE*** posted March 17, 2010

Congress extends the amount that small businesses may write-off for capital expenditures: $134,000!

Business owners who acquire equipment for their business: machinery, computers, and other tangible goods, usually prefer to deduct the cost in a single tax year, rather than a little at a time over a number of years. This deduction is known by its section in the tax code, a Section 179 deduction.

Under Section 179, businesses that spend less than $530,000 a year on qualified equipment, may write-off up to $134,000 in 2010. The rules are designed for small companies, so the $134,000 deduction phases out when a business purchases more than $530,000 in one year. (Companies cannot write off more than their taxable income).

Benefits of a Non-Tax/Capital Lease

The benefit of a Non-Tax/Capital Lease is that it can take advantage of Section 179: expense up to $134,000 if the equipment is put in use in 2010. In addition, you may depreciate any excess on the depreciation schedule for that asset. Examples of Non-Tax/Capital Leases include a $1.00 Buyout Lease, an Equipment Finance Agreement (EFA), and a 10% Purchase Upon Termination (PUT) Lease. Example: Assume you finance business equipment, put it in use in 2010, and take advantage of Section 179. Your tax savings could be significant:

                Tax Savings Example - Section 179 Deduction     

                Cost of Equipment:                                                                         $250,000.00

                Section 179 Deduction if Purchases are $530,000+             $                    - 

                (Dollar for dollar phase out if over $530,000)                       $134,000.00

                Section 179 Write-Off Amount:                                                  $134,000.00

                Regular First Year Depreciation Deduction:                          $23,200.00

                Total First Year Deduction:                                                           $157,200.00

                Cash Savings on your Equipment Purchase:                         $55,020.00

                (Assuming a 35% Tax Bracket, Depreciation 5 years)       

                Lowered Cost of Equipment after Tax Savings:                    $194,980.00

Tax Code Section 179 & Election to Expense Detail

The election, which is made on Form 4562, is for the tax year the property was placed in service or an amended return filed within the time prescribed by law. The total cost of property that may be expensed for any tax year cannot exceed the total amount of taxable income during the tax year. Section 179 property is property that you acquire by purchase for use in the active conduct of your business. To ensure property qualifies, reference Publication 946.

This expense deduction is provided for taxpayers (other than estates, trusts or certain non-corporate lessors) who elect to treat the cost of qualifying property as an expense rather than a capital expenditure. Under Section 179, equipment purchases, up to the amount approved for a given year, can be expensed (deducted from taxable income) if installed by December 31st. Non-Tax leases qualify for this deduction in their year of inception. Any excess above the expensed amount can be depreciated depending on the equipment type. Not all states follow federal law. Contact your tax advisor for further detail or visit www.irs.gov for specific detail.

Tax/True Lease Benefits

If a lease is a Tax Lease/True Lease, the lessor retains ownership and you, as the lessee, may be allowed to claim the entire amount of the monthly investment as a tax deduction. Many rental contracts qualify as a true lease including a 10% Option and a Fair Market Value Lease.

Example Calculation: Assume that you have a Tax/True Lease with a $1,000 monthly payment, the below tax savings that may be available:

To take advantage of the incentives and the substantial tax savings, your business equipment must be put in use by year-end. Please contact your tax advisor to learn about the specific impact to your business.

Interested in learning more? We’ll provide you with a free consultation and extend finance solutions so you can acquire the business equipment you need.  Contact us today!

Fed Beige Book Says Economy Improved in 10 Districts

Jan. 13 (Bloomberg) -- The U.S. economy improved in 10 of the Federal Reserve’s 12 districts last month, marking a broadening of the recovery, the central bank said today.

“While economic activity remains at a low level, conditions have improved modestly further,” the Fed said in its Beige Book business survey, published two weeks before the Federal Open Market Committee meets to set monetary policy. The Philadelphia and Richmond Fed districts were the exceptions, reporting “mixed conditions.”

The Beige Book offers anecdotal evidence that will help central bankers weigh developments in an economy where unemployment is projected to remain above 10 percent through the first half of the year. Policy makers, who next meet Jan. 26-27, last month repeated a pledge to keep borrowing costs “exceptionally low” for an “extended period.”

Most district banks reported that holiday-season consumer spending was “slightly greater” in 2009 than the year before, while remaining “far below” levels of 2007, according to the report, which reflects information collected through Jan. 4. Manufacturing improved or held steady in most districts, while the labor market and loan demand remained weak.

The Standard & Poor’s 500 Index extended gains after the report, rising 1 percent to 1,147.08 at 3:42 p.m. in New York. The yield on the 10-year Treasury note was up eight basis points to 3.79 percent.

‘Picking Up’

The report “suggests the economy is very gradually gaining steam,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “The risks of a dip back into recession are declining.”

Chicago Fed President Charles Evans said separately today that economic “headwinds” such as tight bank credit will abate this year. Evans, in a speech in Coralville, Iowa, said the economy may expand 3 percent to 3.5 percent with inflation remaining stable as bank lending and consumer spending pick up.

“We are going to be waiting for the economy to improve in a strongly sustainable fashion and until that happens, then it is unlikely we would change policy,” Evans, who doesn’t vote on interest rates this year, told reporters after his speech. “Inflation currently is under-running my guideline for price stability so that also supports continued accommodation.”

Employers unexpectedly cut 85,000 jobs in December, the Labor Department reported on Jan. 8, and the jobless rate was unchanged at 10 percent, close to a 26-year high. Payrolls have declined by more than 7.2 million since the recession began in December 2007.

‘Out of Recession’

“Most people would agree we’re out of recession, but I just don’t think we’re going to see the unemployment rate coming down all that much very soon,” said Robert MacIntosh, chief economist at Eaton Vance Management in Boston.

Thomas Hoenig, president of the Fed Bank of Kansas City, said in an interview Jan. 11 that December’s job losses don’t change his outlook for a “modest” and “persistent” recovery.

Consumer confidence is increasing as companies slow the pace of job cuts and stocks rise. Retailers including TXJ Cos. and Sears Holdings Corp. reported improved sales over the holiday shopping season.

Sales climbed 14 percent in December at TJX Cos.’ stores open at least a year, beating the 5.9 percent average of analysts’ estimates compiled by Retail Metrics Inc. Sears posted a sales gain and issued a profit forecast that topped analysts’ projections.

‘Willing to Spend’

“Consumers were variously described as cautious, price sensitive, and focused on necessities, but sometimes willing to spend on discretionary purchases,” the Beige Book said. Auto sales were “flat or up slightly for some dealers” since the last Beige Book was released on Dec. 2.

The labor market “remained soft” in most districts, keeping wage and price pressures “subdued” in all but the Boston and Minneapolis districts. Hiring of temporary workers rose in New York, Cleveland, Chicago, and Dallas.

Peoria, Illinois-based Caterpillar Inc., the world’s largest maker of bulldozers and excavators, aims to bring back some laid-off workers next year as sales improve, said Chief Executive Officer Jim Owens.

“We’ll gradually begin to call people back and to rebuild our overall sales and ability to ship product,” Owens, 63, said in a Dec. 11 interview. Caterpillar cut about 18,700 full-time jobs and about the same number of temporary workers since December 2008.

Largest Economy

The world’s largest economy grew at a 2.2 percent annual pace in the third quarter, the first expansion after four quarters of contraction.

Gross domestic product probably grew 5.4 percent in the fourth quarter, according to Macroeconomic Advisers LLC, a St. Louis-based consulting firm founded by former Fed governor Laurence Meyer.

Home sales “increased toward the end of 2009 in most Federal Reserve Districts,” except San Francisco, where “demand for housing has been steady,” the report said.

Sales of new and existing homes rose 43 percent through November from a recession low in January. An index of pending home sales, or signed purchase agreements that have not closed, fell 16 percent in November, the first decrease in 10 months.

Americans may have been waiting for a first-time buyer tax credit to be extended. President Barack Obama on Nov. 6 extended the $8,000 tax credit until April 30 from Nov. 30 and expanded it to include some current owners.

Borrowing Costs

The Fed’s program to buy $1.45 trillion of mortgage-backed securities and agency debt through March 31 is helping to push down borrowing costs for home buyers.

Commercial real estate “remained soft” in nearly all districts, the Fed said, with New York, Philadelphia, Kansas City, and San Francisco reporting “further weakening in demand.”

Loan demand “continued to decline or remained weak” in most districts, with a number reporting that “credit quality continued to deteriorate.”

Fed Chairman Ben S. Bernanke, in a Dec. 7 speech, cited tight credit among “formidable headwinds” likely to hinder growth. Total loans and leases by banks in the U.S. fell to $6.79 trillion in November from $7.23 trillion a year earlier, according to Fed data.

To contact the reporter on this story: Michael McKee in New York at mmckee@bloomberg.net

Last Updated: January 13, 2010 16:02 EST