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Relationships with local banks must be dealer priority

As President Obama shares with us the State of the Union tonight, there will be no surprise when he says creating jobs is numero uno! What we’re not likely to hear, however, is that until there is an end to the unprecedented drop in credit lines and loans to small businesses like ours, he can kiss off significant job growth. 

The decline in bank credit to small businesses has been so large that it’s unlikely to return to pre-recession levels for many years. That’s the scary viewpoint offered in Bloomberg Businessweek by Scott Shane, professor of entrepreneurial studies at Case Western Reserve University. “To thaw the ongoing freeze, policymakers need to understand how much small business credit has evaporated . . . and why,” Shane noted.

To illustrate: The Federal Financial Institutions Examination Council has looked at millions of loans to businesses with under $1 million in revenue (IRS says 95 percent of businesses generate under $1 million.) The data shows that in 2009, banks originated $73 billion in small business loans, down 47 percent or $64.6 billion less than in 2007. Similarly, an extreme drop occurred in the number of loans made to small businesses. In 2007, 5.2 million loans were originated while in 2009 only 1.6 million new loans were made, a drop of 69 percent!

Moreover, Shane contends the banks had been moving away from lending to Main Street businesses even before the recession, favoring lending to large businesses. The recession dramatically accelerated it.

Speaking at the annual meeting of the Lake Erie Marine Trades Association in Cleveland last week, Bill Thompson, a veteran recreational lending expert at Cardinal Points Network (www.CardinalPointsNetwork.com), essentially concurred with Shane’s findings. “Virtually all the big guys bailed on marine lending,” Thompson agreed. But while Shane’s focus is on government policymakers recognizing what’s happening and somehow addressing it, Thompson sees marine dealers who, he contends, can take action into their own hands. Local banks are the immediate future, he told the LEMTA members, but it’s up to each dealer to make the right moves.

“In a word, it comes down to ‘relationships’,” explained Thompson. “Dealers who have had long-standing relationships with their local banker have found money during this recession. Those dealers who don’t have any such relationships need to get moving in that direction now.”

Thompson pointed out it’s not something that’s going to instantly happen. Dealers can’t expect to walk into a local bank and quickly make a friend for life. The relationships are built over time. The process begins by acquainting a banker with your business. You may have a head start by checking to see if an existing customer (hopefully satisfied) is a banker.

Once acquainted, you really must educate the banker about the marine business. Most bankers don’t know much about us. To help, there is abundance of good material available from the National Marine Bankers Association. There’s a guide on how to build your relationship. There’s information for bankers. Get those materials (www.marinebankers.org) and give the appropriate ones to your local banker.

According to Thompson: “It’s proven that good marine portfolios have low risks and healthy yields. So, you’re acquainting the banker with a genuine business opportunity.”
Contrary to all the rhetoric, policymakers haven’t been very successful so far in stimulating credit to small businesses. Further, regardless of what’s said in the State of the Union tonight, it’s not likely to change soon. Accordingly, dealers must engage or re-engage their local bankers . . . there’s help from NMBA . . . and, there’s no better time to begin that now.

Comments

5 comments on “Relationships with local banks must be dealer priority

  1. dave

    Larry is correct,
    there would be no reason for a large bailout to erase the bank’s risk when dealing with small business, so the banks will not risk loans. There are few, if any stockholders for the bank to answer to
    There are few, if any assets, worth the bank getting involved with
    Who would buy, or takeover the small business should it default
    Small business lobbies are where?

    In spite of decent risks and yields in marine lending….the banks still refuse

  2. Chris Lyons

    Bill hit the nail on the head. Everyone needs to have a new best buddy, your local banker. The tables are turned. The day’s of the banker taking you out to lunch and kissing butt are over. You need to show them why you are a good business bet. I have been working with a large West Coast credit union for about nine months. We started slow to get them comfortable and now they want more rec loans. Small business banking is still a struggle but I think they will be open to a program within a year.

    If you still think that our gov. can tell the banks to lend more to small business then you have your head in the sand.

    Chris Lyons
    yachtmoneyman@yahoo.com

  3. LARRY RODRIGUEZ

    TO CREATE JOBS WE NEED TO START MAKING GOODS IN AMERICA AGAIN, OTHER WISE WE ARE JUST INDULGING OUR OWN URINE…..
    I WOULD LIKE TO HIRE PEOPLE TO HELP, HECK I’M GETTING TOO OLD TO KEEP PRESENT PACE, BUT DON’T HAVE THE REQUIRED SALES REVENUE TO SUBSTANTIATE THE ADDED BURDEN OF COST.
    THERE IS LITTLE DOUBT IN MY MIND, WALL STREET & BANKERS DON’T CARE IF THEY TAKE THE COUNTRY DOWN WITH THEM….. WHO NEEDS THE MUSLIM THREAT?, WHEN BIG MONEY IS SET ON DOING THE COUNTRY IN….
    THE WORLD KNOWS 2 MAJOR CHAOTIC WAYS WAYS TO OVERTHROW A GOVT.
    ONE IS WITH GUNS………DONE IN MANY COUNTRIES STILL TODAY
    THE OTHER IS WITH MONEY, WHICH I BELIEVE IT IS BEING DONE RIGHT NOW HERE…..
    CALL ME CRAZY, LABEL ME AN ALARMIST OR WHATEVER, BUT FOR HOW LONG DO WE NEED TO READ THE WRITING ON THE WALLS………. WE ARE CRUMBLING FOLKS, IT STARTED WITH TAKING MANUFACTURING OUT OF THE COUNTRY, THEN THE FALL OF REAL ESTATE, FOLLOWED BY THE AUTO INDUSTRY, AND NOW THE DEBT PROBLEM………HECK, I’M ENCOURAGING MY KIDS & GRAND KIDS TO LEARN CHINESE, BUT I’M STILL OPEN TO SUGGESTIONS……..

  4. Don

    A true line of credit from a Bank requires that you are in for only 11 months at a time and “out” for 30 days as a “cleansing” gesture to prove that you weren’t too far “off base”. A “feel good” for the banks, but a completely unacceptable requirement for boat dealers.
    Let’s face it, the banks are too damned lazy and complacent (and scared) to enter into any type of floorplan arrangement because of the significant rise in their cost of doing business. Most banks need 3 & 1/4 to 3 & 1/2 percent over their cost of money to make a profit, and today, with the types of they investments they can make, they suffer very little risk. Therefore, much lower costs and great returns. They are truly fat and happy. Why risk anything?
    That is the very issue where our “leaders” (Barney Fwank & Fwends) lack wisdom in how to get banking behind growth by requiring a little risk be taken by our banks without opening the checkbook like they did with “Fanny May” . If banks had a boost from the feds, that would be a help.
    I have said this to many businessmen who are at or near the end; “This is nothing you and I did, this is something that has been done to us!” We must find our way out of this.
    I agree with Bill’s column and I will go one further by telling you; You have nothing to lose by going to your current banker and presenting your workable plan in a direct, and confidant way. Believe me they know what they’re NOT doing. Don’t be stupid and shoot for the moon. Start small and be conservative with figures that can happen. Don’t accept no for an answer. They may be willing to risk a $500,000.00 line now but you had $3million in the past. Next year will be another year !

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