Banks Eye Entrepreneurs

The economy might be on life support, but news about the death of business loans isn't telling the whole story. Some institutions, in fact, are doubling down when it comes to extending entrepreneurial credit lines. Some are even tapping some of that controversial Troubled Asset Relief Program money to help out clients in need of a little liquidity boost.
A safer bet than visiting a major bank, hat-in-hand, is to query your regional lending institution. Many have avoided the subprime mess and are sitting on liquid--lendable cash. Some have even taken a sliver of that federal TARP rescue money specifically to do what Congress and the U.S. Treasury intended: Give entrepreneurs and the American economy an injection of greenbacks in the form of business loans.
"We're entering an era when specialized institutions and community banks are the go-to source for small business," says Chris Hurn, CEO of Mercantile Commercial Capital in Altamonte Springs, Fla.
Mercantile is not a bank. Rather it's a financial services corporation that focuses on administrating and supplementing the SBA's 504 loan program. With the help of the SBA, Mercantile can offer entrepreneurs a loan on 90 percent of the value of a commercial property, with terms as long as 25 years and interest rates in the 5 percent range.
"Office buildings and industrial warehouses, day-care facilities, restaurants and hotels" are game, Hurn says. "We don't do many investor projects with speculation. We don't do multi-family residential. We don't do gigantic development projects. Our niche is generally half a million to $7 million projects."
The institution's pitch, Hurn says, is to wean business owners off money-losing leases and rents. "I finance people who go from leasing a facility to owning," he says. "It's a wealth-building strategy."
At a time when troubled big banks are trimming their small-business loan departments to benefit their own troubled balance sheets, Hurn is concerned that the federal government isn't cultivating economic growth where it could count the most--at the entrepreneurial level.
"There have been about 300 lenders get out of the SBA loan business"--many that have taken TARP money, Hurn says. "It compounds the problem when we know that small businesses lead us out of recession. They're making the situation worse than it needs to be. Rather than strengthen the success of sectors like small business, we've got a government philosophy that says we need to prop up failure."
So don't expect Mercantile to prop up just any mogul-in-training. Most willing lenders are survivors of this mess specifically because they've been wary about who gets their legal tender. You can bet your bottom dollar that they're not about to weaken their lending criteria in this climate. But if you have good credit, if your business shows positive cash flow and if you have collateral such as property, you can probably get a loan.
Hurn says he asks one question when evaluating a potential customer: "Is there enough capital spun off by a company to cover the debt on the loan?"
"It's not that complicated," he says. "We look at tax returns, we take rent, profits, we look at non-cash expenses; add all that, and that gives an idea of the capital spun off on the business. We compare that to the annualized debt on the loan. Say the business spins $1.20 for every dollar of debt payments. If it's that or higher, chances are we'll approve the loan. We'll also look at credit scores and make sure you're a good boy or girl."
While major banks focus on balance sheets, the leaders of some small, regional and midsize institutions want to make it clear that entrepreneurial lending is the lifeblood of American business. They want to keep it flowing.