Local businesses are the economy’s lifeline.
In recent years, there has been a lot of concern about smaller, local companies, and their inability to secure commercial loans, whether for growth, maintenance, real estate or other critical financial needs.
Community banks offer a good cultural fit for local businesses, by understanding the nuances of the community, and providing an understanding of where the prospective borrower fits into that community. Community banks also know the players and market conditions in specific communities, which means they can make a better judgment based on a borrower’s reputation and track record.
SBA-guaranteed lending programs available at community banks help small businesses gain access to federal funds and/or guaranties.
In addition, community banks have money to lend. For example, in December 2010, to mark the bank’s newest office in Stoneham, Salem Five Bank committed $50 million in loans to the greater Stoneham community. Local businesses have been encouraged to apply for commercial loans, lines of credit or other lending products to help meet their goals and to spur business development in the Stoneham area.
All borrowing efforts should, of course, be preceded by appropriate due diligence by the prospective borrower, including a review of potential commercial lending partners.
Tips For Borrowers
Ask about these issues to gain an understanding of the make-up, history, lending trends and community involvement of potential community bank partners.
Capital ratio: This allows borrowers to gauge the financial stability of a bank. As a general rule of thumb, a high capital-to-asset ratio signals a strong bank.
Troubled loan portfolio: Banks with an unusually high number of loans in default could have an impact on “healthy” loans.
Bank charter: Banks have different corporate structures, and borrowers should understand these differences and how they may impact a bank’s future plans regarding mergers and acquisition. We have all directly or indirectly felt the impact of an acquisition, which usually means a change in the people and mission of a bank. Mutual banks are owned by their depositors, cannot be acquired and can only merge with other mutual banks.
Seek out banks that drill down into a business and want to understand a business’s operations, potential losses and challenges. Rather than being intimidated by opening your books to a community bank, embrace the exercise. It’s a sign that your banking partner is deeply committed to your business.
Ultimately, businesses should choose a banking partner that best meets their specific needs. Often, that partner lives and works alongside prospective business borrowers. One definition of a community is a group organized around common values. The relationship between commercial lender and borrower should espouse the same values.
John Hall is senior vice president, commercial lending, at Salem Five Bank. Email: john.hall@salemfive.com
