NerdWallet.com is a personal finance and credit card comparison website launched in March 2010. The site's aim is to deliver recommendations on credit cards, personal finance options, discounts and gas prices. It also reports on credit card industry news and politics while providing financial advice and travel tips. The site also hosts a blog in which small business CEOs are intereviewed, and the content below is excerpted from their interview with GRSB President/CEO Noah Wilcox.
NerdWallet ("NW"): Please describe your community bank and its unique difference. Does it serve any unique business industries?
Noah W. Wilcox, President & CEO of Grand Rapids State Bank: Grand Rapids State Bank is a family-owned bank serving the Grand Rapids area for four generations and more than 90 years. While we do mortgage lending and personal lending, we are primarily a commercial lending institution. We’ve developed industry expertise in the mining, timber markets and related markets, as we serve many customers in this segment, but we also do other loans like retail, sporting land loans and commercial real estate.
NW: What is the role that community banks play in the small business lending space, especially in comparison with other lenders (in particular, credit unions and mid-sized banks, who also lend to their local communities)?
Community banks essentially have a symbiotic relationship with their communities. We are dependent on our communities, and at the same time, we serve them as well, especially the small business economy. As such, we’re interested in strengthening the economy in the local market areas where we operate.
Community banks are also different from other types of lenders in that we are more relationship, versus transaction, driven – building a relationship with small business owners is our primary goal. While big banks are busy building their loan portfolios and mostly view their commercial customers as a number, we seek to be a small business owner’s business advisor.
Given the myriad financing options for business owners today, I recommend that they find a local banker to talk to before they make any decisions – no expectations, just simple advice and information. A local bank will take time to listen to your story and give you a few good options based on your unique situation.
NW: What do you look for in a loan candidate?
The 5C’s are a good starting point. I don’t think there is a “sweet spot” for ideal candidate in terms of loan size or business size or things like that, at least not for us. We make anywhere from $10,000 lines of credit to $3-$5 million dollar loans and beyond. If it makes sense, and the business owner displays strong character and cash flows, we’ll consider them. The beauty of community banking is taking the time to know and understand your customer and find a comprehensive solution that solves a business need.
Things that also strengthen a business owner’s candidacy include having a good accountant, lawyer, and banker – you really need all three to be strong. Having good reporting and financial statements and a history of the owner managing his/her credit well also helps. Owners with poor credit or who are missing one of the 5C’s should still talk to their local bankers – often, we can help find a path for them to be successful.
NW: What advice would you give a small business owner?
In my decades of experience, I’ve seen a lot of small business owners that are great about knowing more “about their widget” (e.g., their individual business product/service) than anyone else, but often times loses focus over time with respect to the underlying financial aspects of the business, especially as the business grows. Their sole fixation on perfecting their business while neglecting core financials and business increases their risk of failure over time. I strongly advise that business owners partner with or hire people who understand the financials of the business – this could mean hiring an accountant, finance professional, etc. I can tell you a quick story that illustrates what I mean by all this – we had a business owner who builds houses tell us that he’d like to start building basements as well. When we asked him about his current profit margin on building houses, he had no idea. When I asked him what he anticipates the margin for basements would be, he also had no idea. Thus, even though something might sound like a good idea in practice (building basements as an extension of the current house building model), it could have disastrous impact if the financials are not well-considered and soundly understood.
On a related topic, cash flow is one of the most critical elements that any and all bankers will consider when deciding to extend credit. Over the years, I’ve seen a lot of business owners wanting to “have their cake and eat it too.” What I mean by this is as business owners want to avoid paying high taxes and find shelters and tax saving methods, what ends up happening is the cash flow trends can show a negative trend, no longer conforming to “1:1 and above cash flows.”
Lastly, as I mentioned before, community bankers are your business advisors – we’re interested in a relationship, not a transaction. That said, if you get in a tight spot, communicate with your banker as soon as possible. Instead of “going dark” on your banker and not returning phone calls, keep the line of communication open.
NW: What do you anticipate for the outlook of small business lending?
Noah: With respect to the business lending climate in the year ahead; I think until the fiscal cliff is actually dealt with many small business owners are taking a wait and see approach to understand what if any impact there is to their particular business. However, there are certain segments of the economy that I think will begin to see a thaw, but I predict it will be slow. This will keep loan demand soft for a period of time. This is actually a great time to approach a local community banker, as most are flush with cash, ready to lend and want to see small business thrive, succeed and grow.