Tag Archives: small business

Are Banks Lending Money to Small Business?

There is a misconception that was especially popular during the banking crisis of the last several years and that continues today at some level. As a small business lender, I often get asked if banks are lending money to small business. The misconception being that banks–including community banks–are just sitting on their hands and are unwilling to invest any loan dollars into small business growth. The reality is very different, at least at the community bank level. The FDIC recently released a report that stated while community banks only have a small percentage–14%–of industry assets on their books, they account for 46% of all small loans originated to businesses and farms in the United States. I would argue this fantastic percentage of small business loans from community banks is the result of community banks being invested in their communities, leadership and decision makers who live and work in the areas they serve, and community bankers who are invested in seeing small businesses in their towns and cities succeed. First National Bank has seen great small business loan growth in the last 18 months, and I know other area community banks have made a similar commitment to finding and helping creditworthy small business owners grow and thrive.

Small Business says “What Fiscal Cliff?”

After today’s Bluffton Chamber breakfast, the Chamber and the Bluffton Center for Entrepreneurs hosted a small business workshop on the challenges of being an entrepreneur. About 25 entrepreneurs (and 17 Bluffton University business students) representing businesses from Bluffton, Findlay, Pandora, Columbus Grove, Ada, Beaverdam, and Lima swapped stories, offered advice, and shared words of wisdom about running a business from personal experience.

What stood out to me were the answers given to the following questions: “Does political noise, “fiscal cliff” drama, and discouraging economic news affect the way you run your business? And are you less inclined to grow and look for new opportunities as a result of today’s business climate?” The answer I heard from people around the room was largely the same: “if you’re not moving forward, you’re likely headed in the other direction.”

There are certainly businesses that are cutting spending and taking a less optimistic approach to 2013. American Express announced yesterday they are going to eliminate about 5,400 jobs this year as part of a restructuring effort. Morgan Stanley is also eliminating 1,600 jobs according to reports earlier this week.

However, the small businesses in the room today maintained that success doesn’t come from sitting still and it’s better to look past the negativity and find ways to adapt and grow. It takes partners who share this mindset for businesses to succeed. In places like Bluffton, Pandora, Findlay and other local communities, willing partners include community banks. A bank of any size sitting on excess funds can decide it’s time to put loans on the books and grow by buying business. However, when the economy falters and large national banks retreat, cut ties with small businesses they’ve suddenly lost the appetite for supporting, and then wait for better days, the value of invested community banks is significant.

Chase and Jamie Dimon don’t need Bluffton or Findlay. Bank of America doesn’t need Pandora. But First National Bank needs Bluffton. First National Bank needs Pandora and Findlay. Ditto for Citizens National Bank and the communities it serves. Businesses and banks need each other to thrive–and healty communities need both–and the right mix is what allows small business to look forward and succeed in spite of challenges.

More Perspective on TAG

In case you’re interested, here is an interesting (if you like this sort of thing) article on the TAG program I posted about earlier. I don’t necessarily agree with every point about why we should keep the guarantee program for bank deposits, but I do agree there is still a lot of uncertainty in the market right now and caution may not be a bad thing. Also, keeping the program is not a taxpayer funded project because banks are the ones paying into the insurance program.

Main Street vs Wall Street

In 2008, the Federal Deposit Insurance Corporation (FDIC) established the Transaction Account Guarantee (TAG) program to instill public confidence in the banking system.  The program provided unlimited guarantees to non-interest bearing accounts through 2010 and then the program was extended to the end of this year (2012). 

And now in plain English (Sorry about that, too much banking jargon), banks pay into a federal program for insurance that guarantees depositors (anyone holding money in a bank) get their money bank if a bank fails and shuts down.  Deposits have traditionally only been insured up to a certain dollar amount and anything over the cap is uninsured.  In 2008, the TAG program raised the cap from $100,000 to $250,000 for deposit accounts and gave non-interest bearing accounts (like a traditional checking account) an unlimited guarantee.  This was supposed to inspire confidence in a banking system that was floundering due to the financial crisis that was really picking up steam in Fall, 2008.

Now, the Senate is supposed to vote today on whether or not to continue the program past December 31, 2012. 

The prevailing thinking is that this temporary guarantee helps community banks because they typically have less creative ways to structure accounts and keep dollars insured.  The reality may be different.  Earlier this summer, the Chairman of the FDIC, Martin Gruenberg, said most of the extra deposits protected by the temporary program were held in the Country’s 10 largest banks.  That doesn’t mean community banks–and their customers–haven’t benefitted from the program, but they may not have been the “biggest” beneficiaries.  Hopefully, small businesses, wherever they bank, have been able to benefit from the added security and will be able to move forward confidently no matter the outcome of today’s possible Senate vote.

If you’re a small business or have personal deposits at a local bank, visit your banker or go to the FDIC website and find out if your deposits are protected.  Chances are, your community banker will be able to make sure you’re covered one way or the other.

CEP and OCAP: Acronyms that stand for small business

Community Banks and small business tend to give government a hard time for often making it more difficult for small businesses to be profitable and grow. So when a government program comes along that effectively encourages small business growth, it is worth noting.

In this case, the State of Ohio has developed several lending programs after receiving more than $55 million from the US Treasury for the State Small Business Credit Initiative (SSBCI). This initiative was designed to encourage lending to small businesses. The two programs mentioned above are the Collateral Enhancement Program (CEP) and Ohio Capital Access Program (OCAP). Both programs help mitigate risk for Banks who are working to put together loan packages for small businesses that may be creditworthy but lack a traditional down payment or do not have adequate collateral. Typically government programs (i.e. the Small Business Administration) have funds available but the requirements and/or underwriting are often prohibitive and difficult to navigate. These state programs, on the other hand, are easy for banks to use and the State wants these funds to be distributed to small businesses that need them.

Check with your local community bank to see if they participate in these programs or visit the State website to see a list of participating banks. The website also lists eligibility requirements and explains more about program details.

As of 11/1/2012 the State has awarded $3.452 million of the $33 million available in the program. Your community bank’s small business lender should be knowledgeable about these programs and can help you explore your options. This is one instance where community banks, small business, and state government can work together to create jobs and improve communities.

Thinking Small is Big after Black Friday

Black Friday has come and gone and retailers hopefully had a great start to their holiday season.  Big stores like Wal Mart, Macys, and Best Buy had their day yesterday.  And now today is Small Business Saturday, where the real shopping starts.  According to the Small Business Administration, 2 out of every 3 jobs is created by a small business.  Small businesses are the lifeblood of the United States and are especially important to keeping communities vibrant in places like Bluffton, Pandora, and Findlay.  So, get in the spirit and support your local small businesses on Small Business Saturday and every other chance you get!

http://www.facebook.com/SmallBusinessSaturday

I Did My 50 in April…How About You?

In 2009, a business owner in Minneapolis, Minnesota, tried to encourage locals to support locally and independently owned businesses by starting an initiative called the 3/50 project.  The initiative took off and today the project has spread all over the United States.

 The premise is simple.  Pick 3 local, independent businesses and spend a total of $50 between them over the course of a month.  According to The 3/50 Project, of every $100 spent in locally owned stores, $68 remains in the local economy.  In contrast, only $43 of every $100 remains local when spent in national chains, and little or no local revenue results from online purchases. 

 This is the sort of effort that makes a community great.  If people are inspired to think and spend locally, then they ultimately benefit themselves by improving the quality of life where they live. 

 Many community banks celebrate Community Banking Month (April) by doing something to celebrate the connection between Bank and Community, because without a strong community, these banks would not be successful.  First National Bank is celebrating the month by participating in the 3/50 Project.  Every FNB employee has committed to participating in the initiative during the month of April to commemorate Community Banking Month.  Even though many of the Bank employees already spend well in excess of $50 locally every month, the exercise is useful because it reminds people why the process is important.

 Feel free to check out the project online and consider making the 3/50 Project part of your monthly routine.

Member FDIC     Equal Housing Lender

So…The Big Banks finally get it

According to today’s Wall Street Journal, “Banks” are getting back to the people business.  The funny thing is that when they say “Banks” they mean the biggest banks in the country.  According to the Journal, “deep customer relationships were the bedrock of the U.S. banking industry, especially at small financial institutions.  That ended at many regional and big banks with the rise of computer-driven credit scoring models…”  The Journal goes on to say that, after a few rough years, those same big banks are trying to go back to the model that has worked so well for community banks–know your customer, and look at credit AND character.  Good community banks never stopped using this model. 

Community banking works because we’re a typically a conservative bunch of businesspeople.  We have high standards but we’re not beholden to a business model that throws out the good clients with the bad.  So we look for business owners that know what they’re doing and that also have strong character. Our customers know us and we know them.  Ideally, it creates an accountability on the part of both the lender and the borrower because we are working with people we know in communitites we want to see grow.  Poor decisions hurt us and the community at large.

So, go see a good community banker if you want to work with someone who cares about you and your business, knows the communities you know, and wants you to succeed.

Small Business Owners: Make the Most of Your Money

Even though the economy has been very difficult to navigate for small business owners in the last several years, it may make sense to actually increase the dollars you spend with your accountant this year.  I realize at first glance this statement may appear to be contradictory to surviving a tough business environment, but give me a chance to explain.

Now, more than ever, it is worth your time and money to make sure you have a handle on your small businesses finances.  Not only are you monitoring the health of your business closely but you are most likely very conscious of dollars flowing in and out of your business on a daily and weekly basis.  You may have had to budget more conservatively, become more efficient, or create new ways to generate revenue to survive this recession.  And, not only are you paying close attention to your finances, your banker (and possible investors/buyers) are most likely paying close attention as well.  And this is not necessarily a bad thing!  Having financials prepared by your accountant could be invaluable to your business for several reasons and could ultimately help you weather the economic downturn.

First, accountant prepared statements can help you stay organized and can leave you more time for running your business.  If your accountant is preparing statements, you have peace of mind knowing it is being done by a professional and hopefully you also have less stress in your life because that particular task isn’t your responsibility!

Secondly, at First National Bank of Pandora, and many other community banks, small business lenders and bankers can be one of your best resources.  Not only are they looking for ways to help your business succeed, but they are also talking to other small business owners who are most likely experiencing many of the same challenges you experience.  Their daily interaction with other entrepreneurs and with other professionals (attorneys, CPA’s, etc) could provide you with valuable feedback on your business practices.  In addition to using financial statements as support to borrow money from the bank, having legible and organized financial statements can help your banker recognize what services or resources your business could use to be more successful and efficient. 

Another benefit to using your CPA regularly for accountant prepared financials is that it provides another layer of feedback and protection for you and you business.  Your accountant will also have ideas and suggestions that could help your business.  And knowing you’ve had a professional work on your books goes a long ways towards giving your financial statements credibility—both to your banker and anyone else who might inquire about your business.

Finally, if you are looking to sell your business someday, accountant prepared statements will actually make your business more marketable in most cases because that second set of eyes provides assurance to potential buyers (or investors) that the numbers are reliable.  This reliability could actually increase the value of your business because there would be fewer questions about the historical performance of the entity over time.  There are several levels of accountant prepared statements (compiled, reviewed, and audited) but even the most basic compilation can be very useful for these purposes.

At the very least, consider discussing your business financials with your banker and your accountant to determine what format will be most helpful for you and your business.  Spending a few extra dollars will be more costly in the short run, but those dollars could be some of the most valuable you spend this year.

FDIC