Local banker has some capital ideas

September 18, 2011
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For business owners who may be having a difficult time finding capital for their latest projects, Michael Sytsma is in a somewhat unique position. He can offer insights that could help them because he has sat on both sides of the lending desk.

As a commercial real estate developer, Sytsma was a borrower who had to convince lenders that his projects were worthy of their consideration.

Now, as a vice president at The Bank of Holland, which is the current USDA Michigan Business and Industry Lender of the Year, Sytsma is part of a team that decides whether a project is worthy of financial consideration.

Before he began his conversation with the Business Journal, Sytsma prefaced his remarks by saying his advice for potential borrowers has been filtered by the economic activities of the last three years, which has been a dynamic period for the banking industry and also for its customers. That said, here is point one:

“I’d say that getting financing is as much about finding the right bank as it is about finding the right deal. What I mean by that is not every bank is the same, and someone would want to find a bank that matches with what their goals are or, if you will, the personality of their business,” he said.

“The second point that I think is important, regardless of which bank, is they need to develop a consultative relationship with a collaborative bank. In other words, one where someone is going to have the relationship, the give-and-take, the back-and-forth in terms of (business) planning, helping and brainstorming,” he added.

Sytsma said that last point is a key lesson learned from the last three years and one that those looking for capital should fully digest.

“You don’t want to be in the position of simply being a transaction for a bank. You want to have a relationship with a bank,” he said. “This is a more macro perspective, but I think it’s an important thing that people should be looking at, and I think more people are looking at that and they’re realizing the importance of it.”

But how does a business owner who doesn’t have that relationship begin to create one? Sytsma said that journey should start by talking with people who are outside the banking industry but have knowledge of the market, such as CPAs, attorneys, other business owners and borrowers. “Talk to them to make sure that a bank, or a few banks, would be a good fit. I think what they should be looking for is the reputation, the consistency, the expertise of a bank, or banks,” he said.

“Ideally, you are going to match up with what you’re looking for, and I think those non-bank advisors will help the business owners or borrowers find that, if they don’t already have it, because a lot of those CPAs, attorneys and business owners have experiences and they talk a lot. They’ll be able to say, ‘This should be a good fit for what you need.’ The key part is finding people you trust.”

Sytsma also said those seeking capital should build a balance sheet, develop more than a casual knowledge of the loans offered by the U.S. Small Business Administration, and create a mid-range and long-range business plan. He defined mid-range as a period of two to five years, with long range extending past that timeframe.

“At least having a plan of what you want to do later can help you make decisions today,” he said.

He also made an interesting, final point that may escape owners whose businesses are in a growing stage — a phase that might attract all their attention but that could lead to disregarding a key everyday factor to keep the growth going. Sytsma said they have to manage that growth carefully because higher sales can increase their need for cash.

“If your sales increase, then you would expect your accounts receivable to grow. But as your accounts receivable grow, you need cash to effectively offset that because you’re selling products. So goods that you’ve paid for are literally going out the door, but you have to wait to get paid,” he explained. “If you grow too rapidly, that can cause a strain on your cash. So, again, you want to have a relationship with your bank and non-bank advisors to make sure you’re on top of that.”

Sytsma felt there is enough capital available in the market. Plus, he said, The Bank of Holland is seeing a lot of profitable growth in local businesses along with a willingness to lend locally — and not just at his bank but at others, as well. “I think the capital is available, generally,” he said.

Much of the growth to which Sytsma referred is in manufacturing and the service sector. He said the past few years, especially 2009, were challenging for those businesses, but most owners were able to manage their way through the bad times, grow their revenues and now are operating very well.

“This is on a historical basis,” he said. “I think (the growth) seems to be fairly broad. There still are challenges but there are a lot of companies that are growing, currently.”

Sytsma also felt interest rates are favorable to borrowers. On a historical basis, again, he said rates are nestled on the lower end of the lending spectrum and could remain there a while, as the Federal Reserve recently announced it planned to keep its bank rates at the current level, which is slightly north of zero, into 2013.

“The majority of short-term lending is variable rates,” he said, “and the majority of those short-term rates are closely correlated to the Fed funds rate.”

Once business owners are ready to approach a lender, they have to show they’ve got some skin in the game. “Every situation is different, but clearly there is an expectation that there will be some cash equity into an investment, whether that’s real estate or equipment,” he said.

Sytsma also remarked that he didn’t think the availability of capital would dry up suddenly. “There is nothing right now that would suggest a departure from that,” he said.

And that gives business owners some time to establish a relationship with a bank, as he recommended.

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