VOL. 8 | NO. 37 | Saturday, September 5, 2015
EMPHASIS Small Business
Business Lending in Recovery Mode
LANCE WIEDOWER | Special to The Daily News
The U.S. Small Business Administration estimates that small businesses provide more than half of all American jobs.
Robert Shaw, CEO of Paragon Bank, which began in 2005. In some ways, he lived the life of a small-business startup just before the financial crisis hit.
(Daily News/Andrew J. Breig)
But since the Great Recession changed the economic landscape in 2008, how those small businesses go about gaining funding to operate or upgrade has changed. In fact, while the economic downturn hit big business, it also had a major hand in reshaping the nation’s small businesses.
A November Washington Post story reported that between 2007 and 2012, 60 percent of America’s job losses happened at companies with fewer than 50 employees.
The economic environment during and following the Great Recession meant that financial institutions were more cautious about giving loans to those smaller businesses.
Robert Shaw is CEO of Paragon Bank, which began in 2005. In some ways, he lived the life of a small-business startup just before the financial crisis hit.
“As the small businesses suffered, we did too,” Shaw said. “We had just reached profitability as the economic crisis hit. So we went through a rough patch but thankfully we had a large amount of capital and were able to weather the storm. We have been back out for a few years aggressively growing our business.”
Paragon has a commercial lending unit in Memphis. Shaw said the focus is on catering to small businesses with a range of products. And in 2014 came the addition of a small-business group that is based in Atlanta.
There is confidence in a rebounding small-business sector, but caution still leads the way. Dana Burkett, commercial loan officer and senior vice president at First State Bank, which via a merger will be known as Simmons Bank effective Sept. 8, said financial institutions are smarter about how they do business now.
“We will all be better informed and see a more sustainable model now as opposed to what we saw before,” she said. “Pre-2008, (applicants) could somewhat cover up flaws. Banks are now smarter.”
Burkett said 2008 through 2010 were tighter years as far as lending was concerned. But while banks weren’t granting as many loans, she said businesses weren’t necessarily seeking them, either.
“Businesses were like the consumer and held on to capital,” she said. “You didn’t see acquisitions, people were conservative. People put things together with a Band Aid, didn’t really purchase equipment. I saw strong, healthy businesses batten down the hatches and maintain revenues.”
Beginning last year and continuing into this year, Burkett said the acquisition climate has heated up.
“And I say that cautiously,” she said. “I don’t think we’re there but I do see improvements.”
The Small Business Administration program has played a large role in recovery. The SBA guarantees bank loans to small businesses. While loans are similar to traditional products offered by a bank, the term limits are longer, 25 years instead of 15, for example.
“What happens is the SBA allows more liberal terms and more collateral values,” said Mike Edwards, president and chief operating officer of Paragon Bank. “The lending is done to good, strong small businesses and, very similar to traditional loans, is done by a bank.”
Sean Henneberger, vice president of small-business lending at First State Bank, said a variety of businesses are utilizing the SBA program.
“We’re seeing businesses young in their life cycle or it might not have that business history established yet,” he said. “Maybe they’re growing so fast they’ll grow themselves out of business. So that extended term with SBA might help them grow their cash flow. Sometimes they might have so many affiliates it doesn’t make sense conventionally but it does utilizing the SBA.”
Chris Anderson, vice president of lending at Orion Federal Credit Union, said most lenders are looking for ways to make solid business loans. He said there are plenty of opportunities in the market as long as the applicant has the proper documentation.
That includes having a solid business plan and supporting documentation before actually applying for the loan.
“Prepare your loan package as if you were seeking an investor to buy in to your company,” Anderson said. “In the end, the lender is investing in the business with the loan proceeds.”
Lenders and small-business owners both were affected by the financial crisis. Now, lenders have regulatory restrictions to consider, not to mention the heavy losses some of them might have been dealt in the past five to seven years.
But that doesn’t mean recovery isn’t happening.
Whether it is a traditional product or an SBA loan, Edwards said it’s important to note that lending is the lifeline for banking. So banks aren’t looking to say ‘no’ to applicants.
“Banks are interested in lending. That’s how we make money,” he said. “We’re very focused on small business and the Mid-South market. Obviously in Memphis and the U.S. economy, the small-business economy is where job growth will come from.”