Scribe: Amy Good Convener: Jonah Pence, Farmers and Merchants
Pennybackers 11:45
Attendees: Jonah Pence, Sarah Prusak, Linda Greene, Milt Matter, Aaron Ludwig, Henryeevs, Kevin Flint, Has Harma, Thorton Tip Parker, Johnny Bar,Henry Reeves & Amy Good
What are the current credit standards?
There has been a tightening over the last few years in what banks can loan. There are standards set by the State and Federal Government (& examiners that oversee the banks). There are also standards established by the bank itself.
There have been two things that has led to fewer loans:
1. The government requires the bank to have an allowance for loan losses and 2. The bank has seen shrinking deposits.
This means they have fewer deposits and of those fewer deposits they are required to retain a certain amount for the allowance for loan losses.
Can TARP funds be used to help fund this allowance, therefore freeing up money for the bank to be able to lend? Farmers and Merchants is not taking any of the TARP funds and the government gives directions on how they are used. Jonah Pence (loan officer Farmers and Merchants) felt the government would encourage the banks to loan the TARP funds.
Who is the golden customer for the bank; whom does the bank presently want to be loaning money to?
- Established business history (1-3 years)
- Good credit history (minimum beacon requirement of SBA loan is 640 the bank requirement tends to be a little higher)
- Good source of collateral (we still like real estate as collateral)
- Solid business plan
- Good debt to income ratio
Farmers and Merchants greatest difficulty in getting approval is cash flow.
What industry do you (the banks) like? We like private education, smaller doctors offices, accounting offices. If someone seeking a loan has a deposit account with us (SunTrust bank) we will take more of a risk, because we are making money of the customer in other areas.
Is there any local foreclosure pressure? Do you see any change in the future? Locally we expect things to remain the same. We do not expect to see an increase in commercial foreclosures in the future.
What can the SBDC (Small Business Development Center) do? Help businesses with their business plans and their capital needs. Their standards on loans are a little lower than the banks as far as a required credit score. Their requirement is 640. This is a great tool, just requires a lot of paperwork. Also, if a person has a lack of collateral they can step in.
What do customers want from their bank? A bank that is less intimidating. There is a perception that small businesses will not have access to credit and there is an intimidation factor to going to the bank. Customers also want a good relationship with their bank. Banks also need to do a better job of informing the small business and letting them know they are there to service them.
How many years of cash flow does the bank need to see? There is not set requirement. Farmers and Merchants bank recently did a loan on a new business that had not cash flow history.
Do banks ever serve as an intermediary to help customers get equity from other sources? There is not a lot of this. Presently the banks do not do a good job with this. Both the representative from SunTrust and Farmers and Merchants expressed interest in thinking outside the box and coming up with creative ideas to help their customers. The small business owners expressed a strong interest in having a bank representative that would seek other solutions when there was not a bank product that was a fit for them.
Have you guys seen more realistic standards for approving loans? Yes the belt has loosened in the last 6-8 weeks. However, a persons experience with this might be industry related. (Suntrust)
What percent of loan requests that you like, get rejected by someone else? Not many, maybe 1 in 10 (Farmers and Merchants)
Will the bank take equipment as collateral? Yes the bank would accept construction and manufacturing equipment as collateral, however; they want collateral that can be sold quickly. We (Farmers and Merchants) are not seeing a lot of commercial loan requests. Mostly we are seeing residential request and we are able to get many of these done.
What can the banks do to get the word out that there is money being loaned? Get involved with groups like the SBDC. Continuing the education seminars. New social networks and functions like this.
Have banks cleaned up their balance sheets? Farmers and Merchants had a great year last year. Our biggest hit was due to the decrease in value of the bank stocks. Suntrust sad that for big banks most got charged off in the first half of 2009, therefore; charge offs and past dues slowed down the second half of last year.
Contacts:
Jonah Pence – Farmers and Merchants Bank
Kevin Flint – Suntrust Bank Farmer and Merchants and Suntrust agreed they needed to continue to let the public know they are there to help and their is credit out there.
