In our first Small-Business Smarts column, we ask if it is possible to succeed in, and even grow, small-business lending despite the sometimes heavy regulatory burden. The community banks we spoke to could offer some lessons to those feeling the strain.
By William Atkinson
Over the past decade, community banks have been saddled with regulations that are particularly hard-hitting for small-business lenders. The most cumbersome regulation for community banks has been the Dodd-Frank Act, which was signed into law in 2010. But while many community banks find it more challenging to lend to small businesses with Dodd-Frank in place, others have found ways to make sure the regulations don’t shake their commitment to serving local small businesses.
One of these is Howard Bank in Ellicott City, Md. In response to Dodd-Frank, the $1 billion-asset bank has “doubled down” on its commitment to small businesses, says Mary Ann Scully, chairman and CEO.
“This is our raison d’être,” she says. “We have successfully focused on ensuring that we have both the capital and access to capital that small-business lending requires.” As a result, Howard Bank has grown its commercial lending consistently in recent years. “We have invested in people with strong networks and even stronger expertise, in systems that allow us to ensure quick and customized turnarounds as we grow, and in product and delivery structures to ensure extraordinary service,” Scully says. “Howard has never believed that regulations should stop us from delivering on our vision and our mission. They may make it more expensive, but that is a challenge we are willing to face.”
Another successful small-business lender is $585 million-asset Seacoast Commerce Bank in San Diego, Calif., which achieved a ratio of commercial loans to total assets of 73.25 percent in 2016 and was named ICBA’s top commercial lender in its asset class this year. Its secret? Specialization.
Richard M. Sanborn, president and CEO, says, “The only thing we do is SBA 7(a) financing.” Seacoast entered SBA lending in late 2009, one year before Dodd-Frank was introduced. The community bank has grown every year since, from about $150 million in assets in 2011 to almost $600 million today.
“Howard Bank has never believed that regulations should stop us from delivering on our vision and our mission.”
—Mary Ann Scully,
For those community banks that could do with extra help, it might be on the horizon. The Trump administration has been vocal about its desire to ease regulations for community banks by rolling back some of Dodd-Frank’s more restrictive passages.
And, in July, President Trump nominated Randal Quarles for the position of Federal Reserve vice chair for supervision as part of the administration’s push to relax regulations on community banks. Quarles is recognized as sympathetic to the banking industry’s belief that regulation impairs lending. As of this writing, he is testifying before the Senate, seeking confirmation. Time will tell if he, or whoever fills this spot, can help clear the way for community banks to not just survive under regulations, but thrive.
What is Small-Business Smarts?
For decades, journalist and regular Independent Banker contributor William Atkinson has immersed himself in the worlds of banking and small business. Here, he introduces the first of his new Small-Business Smarts columns, which will offer inspiration and advice for community banks looking to sharpen their small-business lending knowledge and skills.
What does it take to succeed in building financially successful partnerships with your community’s small businesses? Among the most important factors are a personal interest in small business and a genuine respect for small business owners.
I learned these lessons firsthand early in life. When my grandfather died in 1930, my father, who was 16 at the time, dropped out of school in order to take care of his mother. He found employment as a bank teller in the small town where he lived in Ontario, Canada. He ended up loving banking so much that he stayed with it until he died.
As I was growing up, I noticed that my father spent a lot of time visiting small businesses and talking with their owners. He wasn’t always buying something or doing business. He just respected these people and enjoyed talking with them, whether they were customers of his bank or not.
While I didn’t end up in banking myself, I have been a full-time freelance business magazine writer since 1976 and have interviewed several thousand small-business owners in that time. Like my father, I have been impressed with their energy and fiercely independent nature.
I recall one interview with an electrical contractor in California. He had started out as a one-man shop and built his business to a workforce of 200. As we discussed self-employment, he said, wryly: “Self-employment is the decision to work 60 to 70 hours a week for yourself so you don’t have to work 40 hours a week for someone else.” That really does encapsulate the small-business owner mentality.
According to the US Small Business Administration, there are 29.6 million small businesses in the US, which employ 57.9 million people—almost half (47.8 percent) of the country’s total private workforce. In addition, 98 percent of the 304,000-plus companies that export goods from the US are small businesses, which collectively generate one-third (33.4 percent) of the nation’s $1.4 trillion in exports.
Small businesses have always represented a big potential market for community banks: The latter make more than half of all US small-business loans. These days, that potential is even greater. In the National Small Business Association’s “2016 Year-End Economic Report,” 80 percent of small-business owners reported being confident in the future of their businesses—a nine-year high for this indicator.
In recognition of this potential, this column is designed to keep community bankers up to date on small-business trends, to break down the challenges and opportunities within these trends for community banks, and to share relevant strategies for tapping into, and building, this market.
William Atkinson, a longtime Independent Banker contributor, is a journalist specializing in banking and small-business issues.