Bank vault doors slowly opening
Good news for the economy in general: An expert on small business commercial lending says that market is “really opening up.”
“For an extended period of time, some of the community banks weren’t lending at all. Now they are back in the game, and all banks are getting fairly aggressive,” said Seifert, finance and strategy specialist at the Michigan Small Business and Technology Development Center at a GVSU facility in Muskegon. His office covers Muskegon, Kent, Ottawa and Allegan counties.
However, he added that banks in general “still have high standards — a lot of which is driven by the bank regulators. So it’s not a loose lending environment like it might have been in 2007” and earlier, but credit is “fairly available.”
Seifert has 32-years worth of perspective in the banking industry, including a stint at Old Kent Bank and then at community banks, and he has always been a specialist in SBA lending. In 2006, he was the SBA financial services Champion of the Year — “one of the leading lenders in Michigan that year.”
Small business loan interest rates range from 4 percent to as high as 7 percent, and have been at that level for several years. But what’s different now is the willingness of some financial institutions to offer “real low fixed rates, for a change.”
Although a commercial loan may be amortized in 15 to 25 years, the banks’ practice has been to not fix the original interest rate for that entire term. Rather, within a few years, the loan would be up for renewal — and in some cases the rate would “balloon” upward — and the borrower would have to renegotiate the interest rate with the bank.
Now, said Seifert, “several have low, long-term fixed rates available, which is great!”
Perhaps even better news for the small business owner is that banks now are getting some competition from credit unions.
“Credit unions are really coming on strong in small business lending, and they’re doing a great job. So that expands the field that small business owners can look to,” said Seifert.
Lake Michigan Credit Union is one of the biggest in regard to business loans, said Seifert. He also mentioned My Personal Credit Union, where Bill Seniura, an old acquaintance who once worked at Old Kent, is the commercial loan officer.
The SBTDC finance and strategy staff stands ready to respond to inquiries from entrepreneurs and small business owners, but they don’t just wait for someone to call or walk in. The staff looks for leads from local chambers of commerce or the Michigan Economic Development Corp. or people in their network such as attorneys and accountants who know of individuals who are planning to seek financing for a new business venture or a growing small business.
Seifert said SBTDC staff then tries to meet with the prospective borrower “to try to mitigate any challenges that might be there,” such as low or no collateral, no down payment, cash, etc.
“We put together a business plan or executive summary that gives the banker a quick picture of what the company is like and what the deal is,” said Seifert. Then the STBDC calls bankers to see which might be interested in lending to that person or company.
“You don’t want to send someone to a bank that isn’t interested to start with,” he noted.
Seifert said they usually will send the package of information about a prospective borrower to at least three banks. Being a government-funded program, the SBTDC may not show favoritism to any financial institution.
Seifert noted that much of his time is spent on SBA-backed loans, “but I do all types of (business) lending,” and he is acquainted with commercial loan experts at most of the banks in this area.
That familiarity with the commercial lending community in West Michigan leads to his key piece of advice for any business owner or entrepreneur starting the process of obtaining financing:
“It’s really critical that you tell the right story to the right people,” he said.
Then he told the story of a lady who came to him for help a couple of years ago. She said she wanted to start a pre-school and day care center and had been to nine banks and was turned down by every one of them, he recalled. She showed him her list of banks, which were mainly community banks, and who she had spoken to.
“She was talking to the wrong people,” said Seifert. But there was another problem.
She said she was envisioning a “business start-up,” and when he asked her why she thought she could be successful in it, her reply startled Seifert and painted a totally different picture. It turned out the woman was already running a day care center at a church but had no ownership stake in it. In fact, she had personally launched the day care center in some vacant classrooms at the church, had organized the staff, handled the revenue coming in, paid the bills, etc. But the church would not rent the classrooms to her for her own business venture.
“She ran the business completely, but they owned it,” said Seifert.
“So I changed the story” she had been telling the banks, said Seifert. “It wasn’t a start-up; it was an expansion of an existing business. She had a waiting list of 30” kids, he said. “We got letters from some 80 of the 100 parents that said they would follow her” if she started her own day care center, he added.
“Banks don’t like the word ‘start-up,’ but if they hear it is an expansion, they love that,” he said.
“So in the end, I had three banks looking at it — one of them had turned it down before — and we had all three banks bidding against each other to do the deal. Today, she has 180” pre-school kids at her center “and life is good.”