In the competitive small-business lending marketplace, how do community banks find success? Here are four community banks that are finding their footing.
By William Atkinson
For some community banks, just doing the right things in the best way possible is the key to success with small-business lending. For others, finding a niche and creating a strong program around that niche is the key. Here, we look at four community banks that have achieved success with their small-business lending programs.
“Not all of these loans are the blue-chip deals that everyone is looking for.”
—Mark Skelton, FNBC Bank
As far as Mark Skelton is concerned, the most important factor in small-business lending is management ownership and commitment. They must be willing to commit the necessary resources and time to the program. “For one thing, there is a different risk profile involved in small-business lending than there is for conventional commercial lending,” says Skelton, who is vice president and senior commercial lender of FNBC Small Business for $460 million-asset FNBC Bank in Ash Flat, Ark. “Not all of these loans are the blue-chip deals that everyone is looking for.”
The second key is a clearly defined vision and mission. “You need to decide on the front end why you are doing it,” Skelton says. “There are different schools of thought on small-business lending. Some banks scour the country looking for deals that they can book. There are other banks, such as ours, that are involved in small-business lending on a local level, because we want to support and grow our communities, and maybe even enter into new communities that adjoin our footprint, so that we can grow our footprint.”
Training and communication are also important, says Skelton. “Obviously, government-guaranteed lending is very involved and technical, and it requires keeping up with all of the existing and new regulations,” he says.
of agricultural loans come from community banks
The fourth key is initial buy-in, and then subsequent referrals, from business development officers or commercial lenders within the bank. “I can’t physically be in every market and find every deal,” Skelton says. “They provide us with introductions to these target customers, so we can visit with them.”
Finally, Skelton considers personal service, above and beyond just the loan, to be critical to small-business lending success. “We don’t just hand people a stack of forms and tell them to fill them out and bring them back,” he says. “We work with customers every step of the way.”
For example, Skelton frequently receives calls from people who just have an idea for a business and then talk about the background experience they have. “They want to start businesses, but don’t know how,” he says. “We will help small-business customers craft leases with their landlords, guide them in their entity formation, help them come up with budgets and pro forma numbers, provide them with access to our resources and guide them to other useful resources.”
Specialized loan officers
For $3 billion-asset Live Oak Bank in Wilmington, N.C., niche lending has been the key to small-business lending success. The bank was named the 2018 Lender of the Year by the U.S. Department of Agriculture’s Rural Business and Cooperative Service. It was recognized for being the highest-volume lender nationwide for the USDA’s Rural Business-Cooperative loan guarantee programs, which encompass the Rural Energy for America Program (REAP) and the Business & Industry (B&I) loan program.
“It is unique that a startup bank such as ours with no branches has the ability to lend on a nationwide basis,” says Jordan Blanchard, general manager of the bank’s energy and environmental lending team. “Our original charter allows us to lend in all 50 states.”
The bank started out in 2005 with a focus on SBA lending and is now the nation’s largest SBA lender. It then expanded to USDA lending. “The most important key for us is to embrace the process,” Blanchard says. “Before most banks enter the world of USDA lending, they typically come from the world of SBA lending, because they are both government-guarantee programs.”
“The payoff is that, once you understand the process, you can work across multiple loan programs.”
—Jordan Blanchard, Live Oak Bank, on USDA lending
While SBA lending is a complex process, it is nowhere near as complex as USDA lending, according to Blanchard. For example, to get involved in national USDA lending, you have to send paper documents to each of the 50 states and then deal with inconsistent turnaround times. “From the start, we realized that USDA lending was going to be a longer and more burdensome process, so we dedicated full-time staff members to the process,” he says. “The payoff is that, once you understand the process, you can work across multiple loan programs.”
Another key to success for Live Oak Bank is that it utilizes a vertical strategy. Its SBA program targets vertical markets such as automotive care, entertainment centers, fitness centers, franchise restaurants, funeral homes, pharmacies and more.
“We pioneered this in our SBA lending area,” Blanchard says. “We operate the same way in our USDA lending.” The lending team has a group dedicated to just the USDA REAP, another group dedicated to B&I, another to water and environmental, another to community facilities and others.
Our loan officers are not generalists. … They have extremely specialized knowledge.”
—Jordan Blanchard, Live Oak Bank
“As such, our loan officers are not generalists,” Blanchard says. “They have extremely specialized knowledge. They know all of the detailed rules for each type of lending program, even within the overall USDA program.”
Building a signature product
Another community bank finding small-business lending success in a niche market is $5.9 billion-asset Woodforest National Bank in The Woodlands, Texas, which operates 700-plus branches across 17 states. Its niche is small-business lending that focuses on the Community Reinvestment Act (CRA).
The CRA, a piece of federal legislation enacted in 1977, encourages depository institutions to help meet the credit needs of their surrounding communities, especially low- and moderate-income neighborhoods.
According to Doug Schaeffer, executive vice president and CRA executive director for the bank, the two most important things the bank does to ensure the success of its small-business CRA lending program is to understand the needs of its customers and provide a product with competitive interest rates and no hidden fees. “It is with this in mind that our signature small-dollar product, ReLi, was created,” he says. “This product fits our customers’ financial needs with attractive pricing and minimum qualifications for approval.”
There are two options for ReLi small-business loans: an unsecured line of credit in amounts of $500 to $10,000 and a secured revolving line of credit in amounts of $5,000 to $50,000. In both cases, small-business owners can access funds as they need them online, via phone or at a branch.
“Our small-dollar lending product, ReLi, is different than most, as it provides customers who may not qualify for traditional bank financing with an alternative to high-cost lenders at lower interest rates,” Schaeffer says. “Another feature that is rare is our ability to extend capital to some businesses in the early stages of operation.”
According to Schaeffer, ReLi is more than a loan. “It helps small businesses start and grow, which benefits local economies,” he adds.
ReLi is part of the bank’s Small Business Growth Initiative package, a multifaceted concept that aims to support businesses and their ecosystems. Some elements of the SBGI include “second-look responsible capital,” and providing programs to test their ideas in a safe environment while having access to a mentorship from a network of peers, bankers and community partners.
Putting the SBA customer first
For $1.5 billion-asset D.L. Evans Bank in Burley, Idaho, the key to small-business lending is to provide the best customer service possible for SBA loans. “Our department focuses strictly on SBA loans, and the bank has invested resources such that we can have a centralized SBA department,” says Jennifer DeJean, vice president and SBA manager. “This allows us to have the expertise that we need in order to support the entire bank with SBA lending, all the way from the application processing to liquidation, if that becomes necessary. This expertise also allows us to process loans quickly, and local decision-making is also something that sets us apart from our competitors.”
Over and above this, the bank has loan officers at all of its 30-plus locations throughout the state and Utah who are familiar with all different types of lending, including SBA lending. “If someone is interested in a small-business loan and talks to a loan officer at one of our branches, our department can partner with that loan officer and meet jointly with the client,” DeJean says. In a lot of banks, according to DeJean, SBA lending has become primarily transaction-based. “We don’t view it that way,” she says. “With us, the customer comes first. We don’t just sit in an office, take applications and check boxes. We actually meet with clients and help them understand the whole process.”
“We don’t see clients as transactions. We want to grow with them over the years.”
—Jennifer DeJean, D.L. Evans Bank
And, according to DeJean, the first SBA loan is really just the first step in the process. “We want to build relationships with our clients,” she says. “We don’t see clients as transactions. We want to grow with them over the years.”
William Atkinson is a writer in Illinois.