In Springfield-based The Vann Group, Michael Vann advises business owners on how to make strategic moves: launching the business, overcoming crisis, deciding a succession plan – and, often, acquiring loans. Vann has seen the financial crisis from the borrowers’ side, and has a particular interest in events in the banking industry. The Vann Group consults throughout Massachusetts, and deals with mostly small- to mid-sized businesses.
Michael Vann
Title: Principal
Age: 36
Company: The Vann Group, Springfield
A lot of your job involves telling borrowers what banks want to hear. Do they want to hear different things now than they would have a year ago?
I’m not sure if it’s different, they just are looking at deals very differently. They still want to hear the same story, but they’re getting far more detailed about what they expect for numbers. It’s challenging to get a loan right now if you’re a small- or mid-sized business.
During the worst part of the financial crisis this year, it almost felt like bankers were on the defensive, insisting they were making loans to qualified borrowers, but complaining that many borrowers just weren’t qualified.
I run into bankers all the time. I have yet to hear one tell me they’re not lending. But the criteria that they’re utilizing have changed.
[They also require] much more equity in. We saw a situation recently with a company – this isn’t even a refi, it’s an existing relationship. They’re current with their payments, have been for years, [with] strong personal guarantees. And the bank says, “Well, we’d like you to put some more collateral up.”
Things that in the past may have been able to slide a little bit because of personal relationships, personal guarantees, are now getting a little more stringent.
So your job is tougher, then.
Yes. Very much so.
Do you sympathize with the bankers’ side of things? Or do you understand why they’re using the standards that they’re using?
I understand very well banks’ jobs – they’re not investors, they’re not risk-takers. But there also comes a point where their business is to lend money, and in everyone’s business there is a certain level of risk, and the concern is that they’ve pulled back too far. So if they’re not making loans, they’re certainly not making money, or conducting commerce, and that has a dramatic impact on a lot of small and mid-sized businesses.
We kind of play with … the rule of five. If you take five businesses, there are three that are doing OK … You’ve got another – No. 4 – he’s gone, he’s out of business. You’ve got this 5th company that is on the edge, they could go either way. Things go good, and they’re going to survive. If they don’t, you’ve got another business loss. And what you’re seeing is that banks aren’t supportive of those borderline businesses, the ones that have potential, that have historically performed, and have strong management.
[Those businesses] are not going to make it out of this cycle, because … it’s a slow climb to get out [of the economic downturn] and they need some support, just some flexibility on what they have for existing debt.
I completely understand the need to make sure they’re making good, smart loans. Because to some degree I do feel bad for banks; they got beat up by the customer for a long time. There was a level of loyalty you always had with bankers and there was a good trust relationship and … for a lot of years when rates were good and it was very competitive, people would leave their banks for a quarter of a point, half a point, just to change. To a certain degree, I have a lot of sympathy for them. They went from being a trusted resource to a bit of a commodity.
Top five pieces of advice for would-be borrowers:
1.) Start out with a solid business plan.
2.) Be able to articulate that plan – where you’re going, why there’s an opportunity.
3.) Have strong numbers, with solid, realistic projections.
4.) Make sure you can show collateral – bankers don’t want to take big risks.
5.) Surround yourself with talented accountants, lawyers – anyone who you need to form your business.
