Business loans still available rules of the game have changed
"First of all, clients have to realize that the banking world has changed. You can't just walk into a bank and say, 'I need 200 grand to buy a new machine.' It doesn't work that way," he said.
The clients also learn that their financial affairs must be in very good order before they even think about approaching a bank.
"Banks today are going to be more interested in financial statements and tax returns to show what the company has done," said DeBoer. "And I think the banks are wanting to see those pretty well up-to-date. They aren't looking for 2008 year end; they are going to want to know where do things stand now," he added.
DeBoer, Baumann is an accounting firm that has roots in Holland going back to 1934. Neil DeBoer was a long-time partner who retired from management last year but still works full time at the firm, which has offices in Holland and Grand Haven and employs about 20 CPAs plus about 16 support staff.
DeBoer said the firm specializes in family-owned and family-managed businesses, ranging from small manufacturing firms to retail and distribution, plus a number of medical practices.
One small business that is a client is Chip's Ground Cover, which did successfully obtain financing recently for construction of a new 2,500-square-foot building that will be its new home later this year at 11931 Lakewood Boulevard in Holland.
When it comes to obtaining financing, there are a few challenges, said Nick Weaver, owner and sole proprietor of Chip's Ground Cover.
Weaver, 28, started his business a little more than seven years ago. He provides landscaping materials and supplies to landscaping companies and to many do-it-yourself homeowners. The business has two full-time employees, counting Weaver, plus several part-timers in landscaping season.
Weaver said he had been leasing a business location on the corner of Chicago Drive and Waverly. His new investment involves purchase of property and was his first experience with obtaining loans for buying and developing commercial property. Although Weaver won't divulge how much he is investing in the new property, he did say he had three sources of financing: Huntington Bank, an SBA 504 loan, and some money he had saved.
Both SBA and Huntington had "fairly strict" requirements he had to meet, said Weaver. His SBA experience was "good," he said, noting that Huntington Bank "did the bulk of the work" on the SBA loan application.
Weaver said Huntington has been his business bank since he went into business.
He said he is "optimistic" about the new year ahead. Despite the recession, he said, "I think people like working around their house yet."
Starting a small business is "for better or worse, I guess," he added.
In the financial world, things went from bad to worse over the course of 2008-2009 and some banks aren't out of the woods yet, which has left many small businesses struggling to find financing for new endeavors.
DeBoer said he thinks it may be "a little bit harder" for a small, family business to get financing, compared to larger, publicly held companies like Gentex, which are frequently in the news, releasing information about new contracts or technological developments.
"A bank is going to have a more basic understanding of (the larger companies), where with a smaller client, they are going to want to be involved in terms of what (the business does), how they are doing and is their market growing," he said.
DeBoer said that before the economic downturn, banks were "not so careful" about making loans, especially if it was to a long-term client that had been running a successful business. "I don't want to say they just automatically (approved loans), but they were a little bit looser with it. Today, they have more restrictions from the regulators, so they need more documentation for their file. What they are looking for is, how is this person going to pay for this loan?" said DeBoer.
Although he is quick to note that he is not a banking expert, DeBoer was willing to offer his opinion on the oft-repeated claim today that many banks are sitting on capital, rather than lending it.
"I think it varies by bank," he said. "I think some of the ones that paid their TARP funds back quickly may well not have needed it or not needed much of it in the beginning. So they are well capitalized," he said.
He added, however, that some other banks were more seriously affected by the real estate crisis. "They have a lot of shaky loans, so that cuts into their capital and how much they can lend," he said.
"Banks are all regulated and get examined at last once a year by either state or federal people. Those audits are being more restrictive; they're looking at the loan portfolios and saying, 'Hey, is this a good loan or is it not?' So the regulators have kind of stepped up surveillance on the loans too."
DeBoer said he has lately seen situations where "the economics" of some banks is becoming better. “They're kind of getting their house in order, cleaning out some of their old loans that have been disasters and (the cause of) these huge write-offs they've had — all of which affects their capital requirements."
"So, yeah, I think things have probably hit bottom and we're starting to move up. There is obviously some concern on a national level about the big commercial projects, but most of the banks that we deal with in this area aren't really involved in those," said DeBoer.
"Hopefully, 2010 is going to be a better year than 2009," he said. "We kind of see that with our clients; it looks like things have stopped moving down and are starting to move up."
When a small company gets stronger and brings back one or two employees at a time, it doesn't have a huge impact on the economy or the local perception of the economy, he said, but it still is important because it may signal that the economy has stopped going down — and that will encourage more banks to lend.
"I'm positive on 2010. I don't think it's going to be a boom year, but I think … we're on our way up — maybe slowly and gradually, but it's a positive trend," said DeBoer.