My motorcycle of choice is Harley-Davidson. I relate to the brand, they cater to guys like me, and the only thing that even comes close to what I like about my Harley is really just an imitation—until now.
A few years ago Polaris Industries introduced an entirely new motorcycle brand to the market. I know a few guys who love their Victory motorcycles. They’re good bikes built by people who are serious about building a quality motorcycle, they just don’t speak to me. I prefer my Road King—which should really mean something to the Motor Company.
A year or so ago, Polaris announced they would be purchasing the Indian Motorcycle brand. I was interested.
One of the things that resonates with me about the Harley-Davidson Motorcycle brand is the long history. The Indian brand has the same history. In fact it’s even a little longer, Indian is the oldest American motorcycle brand. Since the original motorcycle company closed its doors in the 50s, a number of smaller, boutique, manufacturers have tried to keep the brand alive over the years. Now, with the financial muscle of Polaris behind it, I think Indian has a chance to win over a Harley rider or two.
Like Harley-Davidson, community banks have been a major player in their market for a long time. Community banks are an important part of the small business infrastructure. It’s the first place most small business owners go when they need a small business loan, but it isn’t where most small business owners get the financing they need.
Pepperdine University’s Private Capital Access Index for Q3 of 2013 suggests that where many small business owners are looking for financing isn’t where they’re finding it. Here are the top five places, in order, where small business owners go to find financing:
- Banks (59 percent)
- Business Credit Cards (57.2 percent)
- Personal Credit Cards (49.9 percent)
- Personal Loans (48.4 percent)
- Friends and Family (44.2 percent)
This shouldn’t be a surprise. Having been a small business owner a couple of times myself, my bank is the first place I would go. In fact, when asked where they would go if they were looking for a loan, 65 percent of the survey respondents (including those not looking for financing) identified the bank as the most likely source of financing. Interestingly, where they actually found the financing they needed fell out in the opposite direction.
- Friends and Family (71 percent)
- Personal Credit Cards (58 percent)
- Trade Credit (57 percent)
- Business Credit Cards (54 percent)
- Banks (27 percent)
There’s some obvious overlap in where they look and where they find small business credit, but the bottom of the heap may not be where community bankers want to be. I think we all understand the last few years have been devastating for many small business owners; and their credit worthiness has suffered. The last 10 or 15 years hasn’t been a bed of roses for community bankers either as they either get consumed by bigger banks or disappear all together. In fact, I read recently that we have fewer banks now than we’ve had since the Great Depression. It makes total sense that community bankers would want to move upstream to bigger and potentially more lucrative fish. I can certainly understand it.
There are other reasons banks aren’t lending to small business, but there are also some very compelling reasons to lend to small business. I’m not suggesting we return to the days of the savings and loan crisis, but there are community bankers who are finding reasons to do more than simply talk about their relationships with small business.
Holladay Bank & Trust in Salt Lake City doesn’t have branches all over the country—or even all over the city. They have one branch and were established in 1974 with a mission to serve their local community. A mission that is still important to the bank today. (In the spirit of full disclosure, they are one of the banks on the Lendio network of small business lenders. I was introduced to them because of the approach they take to small business lending, which I believe is a great example of what other community banks could do to breath life into the Main Street businesses that fuel our local economies.)
Over the last almost 40 years, the bank’s small business lending focus has been real estate-backed loans and they’ve become known for that expertise. In recent years, they started making more traditional SBA-backed small business loans within the 7(a) program (one of the most popular SBA programs). When I asked her what Holladay Bank & Trust was doing differently from other SBA 7(a) lenders in the area, she said, “We work with a lot of small business owners who have good, healthy businesses, but aren’t perfect. They might not meet the restrictive standard of norms and requirements set by the bigger small business lenders in our area, but have proven to be great small business loan customers.”
When I asked her to get more specific about their approach, she said there were four key items they look for in their target customers:
Character and history:
The last few years have been tough for everyone on Main Street. When evaluating a potential loan, she wants to know if the business has a good management team, are they current with their monthly obligations, do they have a good product, are they competing well within their market? Sometimes these indicators can mitigate a less than perfect credit history.
“If there’s a good management team and they have some of these other factors in place, we can make a case to the lending board that the business is a good candidate for a loan,” she said. “Of course there is a credit score threshold we won’t go below, but we want to make sure we’re doing the best we can for all the small businesses in our community.”
We appreciate what it’s like to be a small business:
“Main Street business customers are what we’ve built our business on,” she said. “Although we do a lot of bigger small business loans, I’m just as happy to help the small business owner who is looking for $50,000. To a lot of the Main Street businesses in our community, that’s a big loan. We understand what it’s like to be the little guy—in some respects, we’re the little guy too.”
I recently read an article written by Ray Hennessey calling for the SBA to be abolished. As editorial director for Entrepreneur.com, I was surprised by his point of view because many of the small businesses he seems to distain, seem to be part of his audience—and they disagreed with him, I might add. There is more the SBA could do to encourage banks to accommodate small business owners just like what Holladay Bank & Trust is doing. Processing the paperwork for a $50,000 loan is just as cumbersome and costly to the bank as a $500,000 loan. Which, the bankers at Holladay Bank & Trust have chosen to do because they see the value within their local small business community. Streamlining that process by the SBA would be a great start.
Speaking of paperwork:
It’s not uncommon for the months-long approval process to take its toll on a small business owner. What’s more, “Most banks are six weeks out before they’ll even talk to you about an SBA loan,” said Flynn. “Instead of sending the 20-page packet and wishing them luck, I try to meet with potential borrowers right away. Instead of expecting the small business owner to plow through a bunch of unfamiliar documents, I digest their financial statements and other documents and start the SBA forms myself. That way, the next time we meet, we can fill in the blanks and try to shorten a very lengthy approval process.”
It’s been said, “Time is money.” This is particularly true when applying for a small business loan.
Community lending decisions are made in the community:
Of course this is problematic for bigger banks, but the approval process begins and ends within the walls of a single Holladay Bank & Trust office. Everyone involved in the lending process is under one roof, part of the same team, and invested in helping the small business community in their community.
Of course Holladay Bank & Trust might be on the smaller end of the small business lending continuum, but I think they’re on to something. It reminds me of what it was like earlier in my career. Our banker was familiar with our industry, he knew my partners and myself, and liked to do business at our office. When we needed cash, he made it happen. I have to admit; I probably took him for granted because I didn’t know just how rare that was.
We haven’t even talked about the alternative lenders entering the market and taking small business loan volume from community bankers. I wonder how long it will be before they start taking other services like checking and savings?
I don’t think Harley-Davidson can afford to ignore what Polaris is doing with the Indian Motorcycle brand. Nor do I believe bankers can take for granted the small business base of customers they argue is an important part of their business. Community bankers have a very important role to play on Main Street. We need more bankers like the folks at Holladay Bank. What are you doing to build your local community?