The Bankers’ Perspective
No question about it – small businesses are playing a major role in the revitalization of the American economy. And bankers have taken notice. Many say they’re committed to lending to small and medium-sized, established businesses. But there’s a caveat.
“The biggest factor banks look at is the business’s capacity to repay,” affirms Marsha Cruzan, Chicago market president, U.S. Bank. The ability to repay is based on several elements, including a company’s past history and the outlook for its future performance, according to Lisa Johnson, head of Wells Fargo Commercial Banking’s Midwest Division.
“The factors we consider are specific to the business,” explains Ms. Johnson. “A restaurant’s ability to repay, for example, may be influenced by the price of food, the competitor who just opened down the street, or the changing demographics of the community it serves.”
Along with the ability to repay, Citibank Illinois Retail President/Chicago Market President Mindy Mercaldo adds other factors they consider, including a business owner’s credit history, collateral and experience. “Generally, banks want to see a few years of profitable business operations before they’ll make a loan,” she states.
A trusting relationship with a banker is critical to a business’s success, and open communication is key, says Ms. Cruzan. “A banker who can sit at the same table with the business owner, her accountant and lawyer will have a clearer understanding of the business’s challenges, goals and operating cycle,” she explains. “By providing your banker with that insight, you arm yourself with a partner that is ready to help you grow today and in the future.”
Ms. Johnson underscores the importance of having a relationship with not only a banker, but other professionals at the bank who should be familiar with the business, the industry in which it operates and its areas of risk. “This relationship is best built through in-person meetings at the business owner’s place of business,” she explains, “where the owner can more easily include other members of his/her management team.”
Ms. Johnson points to Corporate Concepts, a Chicago-based Wells Fargo supplier led by Majority Owner/CEO Victoria Hansel. Last year, Wells Fargo approved a working capital loan to support the company’s growth, allowing the company to acquire and stage inventory to support large office build-outs. “Corporate Concepts is a fundamentally healthy business that has performed successfully through challenging cycles,” she says. “Its management team has invested time and energy in its relationship with us – significant factors in the decision to extend credit.”
The discussion with a banker should include short- and long-term goals, states Ms. Mercaldo. “You need to be upfront about your challenges,” she adds. “Let your banker know if you’re facing challenges or areas where you would like more expertise. Remember, your banker is there to help you.”
The length of the application process for a business loan depends on the complexity of the business and its collateral, says Ms. Johnson. “For example, there are regulations surrounding the evaluation of real estate collateral, including the use of appraisers, the need for flood plain insurance and environmental assessments that impact how quickly a loan can be improved and funded.” For those who don’t qualify for a bank loan, there are other options.
“The best alternative in such cases is to borrow from those who do not necessarily need to be repaid – namely, friends and family, personal funds contributed by the business owner or professional investors who can take over the business if it does not perform to expectations,” observes Ms. Johnson.
Other options are small business lending programs and microloans offered through local community organizations. For example, the Women’s Business Development Center and ACCION can provide small businesses with advice, support and connections and, in some instances, alternative financing.