Small-business lending: Beyond financial advice

Community banks that offer strategic as well as financial guidance to small-business owners stand to benefit.

By William Atkinson

In Ash Flat, Ark., $440 million-asset FNBC Bank recently opened its FNBC Small Business Division. Part of the role of the new division is ensuring that small-business clients can access all of the tools and resources they need to succeed, whether this be capital, competitive checking products or business planning.

“Not all small businesses have lending needs, but many of them do need access to business specialists who can guide them through the areas where they may not have as much experience,” says Mark Skelton, vice president and senior commercial lender of the new division. “We want to be true partners throughout the entire process. Whether they have human resources questions, need someone to review a marketing plan, or need mentoring on management and leadership, we can help.”

Farmers & Merchants Bank in Miamisburg, Ohio, with assets of $150 million, is also committed to going above and beyond for its small-business customers. “The financial advice could be regarding cash flow, loan structure, expense control,” says Clint Morton, senior vice president and senior lender.

This enhanced service can be a key differentiator between community banks and larger institutions. A recent example: One of Farmers & Merchants’ business customers was selling his business and recommended to the buyer that he visit Farmers & Merchants Bank to open a business checking account. The buyer did visit and told Morton that he planned to finance the acquisition through a regional bank using the SBA 7(a) loan program. His business broker had referred him to the regional bank.

“I began asking questions about his SBA financing and his personal finances,” Morton says. It turned out the buyer had sold a company a couple of years earlier and netted more than $3 million in cash. He was looking for a business to buy and was willing to put 20 percent down. “He had excellent credit, excellent liquidity, strong net worth and business management experience,” Morton says. “The more we talked, the more I knew he qualified for conventional bank financing and did not need an SBA loan.”

Going conventional
Morton calculated that if they switched gears midstream, withdrew the buyer’s SBA application with the regional bank and opted for Farmers & Merchants’ conventional financing offer, the buyer would save at least $200,000 over the life of the loan. “This is exactly what he did,” says Morton. “We rushed the underwriting, approval process, appraisal and title, and closed in less than two weeks, meeting the timeframe specified in his purchase contract.”

That said, strategic advice is not always what a small-business owner wants to hear, according to Morton. For example, an owner might come to the bank to buy a piece of commercial real estate. “We might take a look at it and feel that it is priced too high,” says Morton. “Or, we might know something, through our banking connections, that makes us think the best thing to do is wait and see.

“Several times, we have seen the same property go through a sheriff’s sale or foreclosure, and then go back on the market,” he says. “I have had the pleasure of sitting with one of our small-business owners at a sheriff’s sale and watching him secure a $450,000-plus property for $250,000.”


William Atkinson is a writer in Illinois.

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