Pittsfield-based Greylock Federal Credit Union was one of the U.S. Small Business Administration’s top 10 lenders in the Bay State this year.
At the Center for Women and Enterprise’s most recent “Seeking a Loan for your Start-up or Existing Business” seminar, held last Thursday at the 11-year-old Boston nonprofit’s headquarters, about a dozen participants – mostly from the center’s Entrepreneurial Training Program – peppered CWE Loan Specialist Kathy Maroney with questions about credit scores, loan payoff schedules and “angel investor” vs. personal vs. “micro-loan” financing.
Don’t get discouraged if a bank won’t give a loan to your start-up, advised Maroney, a former commercial lender. “Some banks do,” though most lenders won’t, offer 100 percent financing, she said. New restaurants are seen as particularly risky ventures, she added.
The “key” attributes of a successful loan-seeker, according to Maroney, are a stable personal credit history, cash flow – such as from a second job in the early stages – to pay back the loan starting 30 days after it closes, and collateral or a loan guarantee in case it doesn’t work out.
The crowd was primarily 40- and 50-something, predominantly white and mostly women (while CWE caters to women, it works with men, too). The seminars have run monthly since 2001, training some 600 loan-seekers from all economic backgrounds and educational levels since their inception, Maroney said.
Some of the questions from audience members marked them as beginners – but CWE has an impressive record of putting bank financing in their hands. Clients, who pay $100 plus a small percentage of the loan achieved for “packaging” services, have secured $31 million in business loans, boasts the group’s current annual report.
Steve Adams, a regional advocate in the Boston office of the U.S. Small Business Administration, said the federal agency offered guarantees to lenders on 13 percent of approximately $2.8 billion in small-business loans (loans less than $1 million) originated in Massachusetts, and on 3 percent of $522 billion in such loans nationally, in 2004.
One thing Adams said he’s learned through his job is that “there’s often a mismatch” between bank marketing materials and the loan-seekers they target.
“What they hear oftentimes is, ‘We are the bank for the small-business person,’ and they walk in and find something else going on,” he noted.
In fact, most new businesses don’t get their start-up financing from banks. Just 22 percent of all U.S. businesses, and 19.5 percent of women-owned businesses, used a bank loan for start-up costs in 2002, according to the SBA’s survey of business owners from that year.
Sixty-four percent of would-be owners used personal or family savings as their primary funds to start their business; credit cards, home equity lines of credit and loans from friends and family were other sources, Adams said. It doesn’t make business sense for most banks to offer a loan of less than $25,000, Maroney said, but micro-lenders such as Accion (which has a relationship with CWE) and non-bank investors such as Boston Community Capital are alternatives for those who need less initial capital, Adams said.
The most common type of SBA loan guarantee, by far, is the 7(a) Express. The agency also offers 504 loans for businesses that want to purchase real estate.
“The 7(a) is the startup loan,” Adams said. The SBA, if it agrees to take on the risk, offers a 50 percent guarantee to the lender if it fails. The 504 loans generally are aimed at established businesses seeking to purchase or lease real estate, he said.
The SBA granted 2,610 7(a) loans – 512 to women entrepreneurs – in the 2006 fiscal year. Some 195 business loans, including 28 sought by women-owned companies, were backed by the SBA 504 loan this year.
‘An Important Segment’
Scott True, a vice president and commercial lender at Danversbank – which has $1.1 billion in assets – and a former Boston SBA loan specialist, said it’s fair to conclude that an SBA lender “is a bank willing to make riskier types of loans, with that guarantee.”
Danversbank, an SBA preferred lender, has done SBA loans “for decades,” for both small start-up and continuing business loans, he said. “Small business was an important part of what we did [starting out] and what we do today,” he said.
“The one caveat I’ll throw out there is how you define ‘small,'” added True. “What’s small to a Bank of America might be a $1 million loan. Small to us might be $20,000.”
True said a number of banks use borrower credit scores as a sort of litmus test to see if a loan is feasible. (According to Maroney, banks want a personal credit score of no less than 600.)
True said Danversbank uses credit scoring as one factor in approving “smaller loans” – generally under $100,000 – but also considers one-on-one appointments.
By contrast, “I know for a fact that some banks do credit scoring, and that is how the smaller loans get approved,” added True, who used to work for the former BankBoston.
The top Massachusetts SBA lender in 2006, by both dollars and number of loans made (876 loans totaling $43 million this year), was Citizens Bank. It has held that spot since 2001.
Citizens spokesman Michael Jones said in his bank’s experience, most people don’t finance new businesses through a “traditional business loan.” However, “Citizens will often work with start-up companies to help them find a nontraditional source, if they don’t qualify for a traditional loan,” he noted. “We want to help them start their business.”
Pittsfield-based Greylock Federal Credit Union was also one of the SBA’s top 10 lenders in the Bay State this year. The former Pittsfield G.E. Employees Credit Union has a commercial loan portfolio of about $60 million, of which 10 percent are SBA-backed loans, said Vice President for business lending Don Kuczarski.
“Nearly all of those are start-up situations,” he said, adding that the credit union has seen many “new, dynamic businesses starting up, and others changing hands” in the western part of the state.
Business is growing so much that the $875 million credit union added another commercial lender this fall, he noted.
Kuczarski said Greylock’s typical SBA loan is about $75,000, while its average commercial loans are about $150,000.
He added that Greylock wants to see the same qualities in every borrower: “energy and enthusiasm for the business idea, a solid business plan, good
communications skills, and a desire to keep us involved in the process.”
True noted that lenders also are looking for “people with experience in the field,” and borrowers willing to put up a significant amount of their own capital. Borrowers, he said, are looking for a bank that will take time to get to know them – “and the best deal they can get.”
And it’s a competitive world for deal-making, True said. “I think pricing [interest rates] on business loans is getting very competitive. Banks are also competing with each other,” he added, “by soliciting the accounts of the competition.”
Even though there’s competition for accounts, True said that after 25 years in the business, he can tell that small business is growing.
“If you just look at the numbers Â… it is an important segment of the economy,” he said. “If you look at the country as a whole, [you’ll see] the majority of new businesses are small businesses. And banks are helping those businesses.”
