Small banks drive small business
Arlington entrepreneur thanks his banker for loaning money when credit got tight
Banker sees threat in new capital rules of Basel III October 31, 2012
Coastal Community Bank’s fortunes continue to improve October 23, 2012
Owner Glenn Bayha hired two more employees this year and demand for the Arlington company's services and products appear to be on the upswing.
The company, which employs a dozen people, probably wouldn't exist at all if it weren't for two key decisions: Bayha was fortunate enough to secure loans before the economic downturn, and he chose a local bank willing to stick with him after the economy soured.
Access to credit at several stages in the company's growth has “made all the difference between survival and failure,” Bayha said.
For small businesses, accessing credit has become far more difficult since the 2008 meltdown. Especially hard to obtain are commercial and industrial loans, the type used to finance inventory and buy equipment. It's also difficult for businesses to get a construction loan.
“There is credit available. It's just the underwriting is a tougher than it was five years ago,” said Mark Duffy, CEO and president of Mountain Pacific Bank in Everett.
The loss of small banks in Snohomish County is partly to blame, he said.
Community banks often are the go-to place for small businesses to get a loan because they're generally more flexible than large banks. Since 2008, the number of community banks countywide has dropped by half. The Snohomish County-based survivors are Mountain Pacific Bank, Coastal Community Bank, The Bank of Washington, Prime Pacific Bank, Unibank, 1st Security Bank of Washington and Pacific Crest Savings Bank. Gone or absorbed by larger groups: First Heritage Bank, North County Bank, City Bank, Cascade Bank, Bank of Everett, Frontier Bank and Golf Savings Bank.
Large banks, of course, have advantages that smaller ones don't, including the ability to make far bigger loans and to offer more products. Interest rates offered by larger banks can sometimes be lower.
Community banks often evaluate customers on more than credit scores and financial statements. Loan officers at community banks also consider soft factors — such as character and business relationships — that might make a small-business owner a better bet than they appear on paper.
Pending bank capital rules proposed by the Federal Reserve will likely make it even more difficult for local businesses and individuals to obtain credit from community banks. Experts worry that could stifle small businesses, the engine that drives the local economy.
That worries Bayha, who can see the economic benefits of a business like his rippling outward to the community.
Bayha worked for Cascade Door and Hardware a number of years before purchasing the company in 2006. He immediately streamlined the business and moved the company from Everett to a leased space in Arlington.
Just before the economic collapse, the company obtained a construction loan with Mountain Pacific Bank to build its own warehouse and office. Construction was wrapping up in late 2008, just about the time Bayha needed to convert the construction loan into a commercial mortgage, which Mountain Pacific Bank did.
Two other companies building next to him weren't as fortunate, Bayha said. They financed through a different bank and were not able to roll their construction loans over to a mortgage. They subsequently went into foreclosure and those buildings are now bank owned and sit empty.
“I'm aware of how lucky we are,” Bayha said.
More than luck, Bayha had a good relationship with a local community bank. In his experience, mega banks don't want to deal with a small business. Bayha said Mountain Pacific is the kind of place he can walk into without an appointment and talk with the CEO.
“I can tell him about my challenges and he can tell me what he can do and what he can't,” Bayha said.
Banks look primarily at cash flow and a company's track record before granting a loan, said Nancy Porzio, a district director based in Seattle for the U.S. Small Business Administration.
When it comes to getting a loan to start a new business, banks want to see a commitment on the part of the borrower to repay that loan. The borrower needs a positive credit score and collateral.
The SBA offers information on small-business loans, grants, bonds and other financial assistance. The agency doesn't make loans directly; instead their government-backed loans are offered through most financial institutions statewide.
Despite the state of the economy, many people are still expressing interest in starting a business, Porzio said. Right now, industries with the most SBA loans are service, retail, professional and high-tech, and health care.
For those contemplating a new business, Porzio offers an important piece of advice: do your homework. The SBA offers programs and free counseling for both new and established business owners. Learn more about SBA programs at www.sba.gov.