Business owners are concerned about
a potential economic downturn, but,
according to Ron Carl, a commercial loan officer with Brentwood Bank, it’s an
opportunity with an upside.
“By taking a moment now to look into what
a community bank lender has to offer, you
can put your business in a significantly better
position no matter what happens with the
economy,” Carl says. “The more unique your
business needs, the more ways your business
will benefit from the hands-on approach of a
smaller community bank.”
Smart Business spoke to Carl about flexible financing and ways to ensure your specific needs are met.
What might a smaller community bank offer
that a large commercial bank might not?
What a community bank lender can do is
have a better understanding of the borrower.
A loan originator from a large commercial
bank is primarily going to look for opportunities that conform to that institution’s lending
guidelines. If business practices are encountered that don’t fit within the institution’s boiler plate and are outside the norm, it’s an
immediate red flag. This can frustrate operating companies that need financing structured
a certain way because of the nature of their
business and operations.
Lenders at smaller community banks can
be more accepting of these operating circumstances because they can spend more
time getting to know how the business operates. They may also benefit from working
within smaller, less rigid organizations, which
can allow for more flexibility in structuring
the loan to meet certain needs, while still
meeting all their institutional lending guidelines and requirements. The bottom line is
that the more a business needs custom-tailored loan terms and conditions, the more it
will benefit from a community bank that specializes in providing them.
How can owners find the right bank that’s
suited for their specialized businesses?
I know of one prospective lending client
who asked very specifically about what kinds
of knowledge the bank had about operating
companies, in terms of cash flow issues, working capital, equipment needs, liquidity
requirements, etc. The bank then provided
examples of similar situations and how each
deal was structured. The client wanted to see
how the bank approached the underwriting
process and how it analyzed the operation,
including the relationship between receivables and payables. It’s a much more complex situation to analyze (from a credit analyst’s standpoint). You’re looking at, potentially, a half-million-dollar working line of
credit, additional equipment needs, the seasonality and type of business, concentration
of revenue — a whole host of issues. What
this entrepreneur was really getting at was:
‘Will you be able to understand what my company does?’ He knew that if the lender understood his business, he was going to get a lot
more out of that relationship over time.
What are some other things that a community bank may be able to offer?
You want to look for diversity, in terms of
the loan amounts that an institution is financing and looking to finance. Diversity is important because it means that the institution can
service a $20,000 need as well as a $2 million
need. With some of the larger commercial
banks, it’s not unusual to discover they may not want to bother with the smaller amounts.
And with many smaller niche institutions and
community banks, you can find the capacity
to fund loan requests up to $5 million.
You may also want to look at institutional
stability. Is the bank being impacted by mortgage loan losses, is it a stock bank with shareholders exerting pressure for earnings (or to
sell), is it tightening credit standards, will
good credit risks with unique needs — like
operating companies — get caught in the
squeeze as a result? In the end, you not only
want to go with someone who knows what
he or she is doing, you want to go with someone who you know is going to be around.
What opportunities would you recommend,
given the current economic climate?
The rate environment continues to make
refinancing or repositioning debt an attractive option — whether it’s as a preventive
measure to hedge against an economic
downturn or to fund growth-related needs.
Now may be the time to ‘equity out’ and fund
improvements with a cash-out refinance.
Terming out debt over a longer period may
also be worth considering, particularly for
the business that sees a slowdown ahead or
is concerned about rising costs of materials
and anticipates needing more liquidity. At
the very least, you’ll want to review terms
and conditions that you currently have in
place, and look to see if there’s an opportunity to reduce your payments by amortizing
over a longer term. This may also be a good
time to assess whether a line of credit is
needed to provide short-term working capital during slower periods.
Also, if you’re not happy with the way loan
terms and conditions have been handled in
the past, this is the perfect opportunity to
give the community bank lenders the chance
to prove what they can do. Today, a community bank lender can offer big bank capabilities, knowledge and specialized expertise,
but with small bank flexibility, personal
attention and on-site loan servicing from
people you can ask for by name and who are
readily available to you. For many businesses, that would be an improvement in any
economy.
RON CARL is a commercial loan officer with Brentwood Bank. Reach him at (412) 409-9000 or [email protected].
