The New Small Business Bankers

 

Something strange happened to Robert Tracht and Bruce Gilman on their way to building a multi-million-dollar import-export business. In the summer of 1982, after six months of skyrocketing sales and unimpeachable credit, they were suddenly "invited" by their bank, First Interstate Bank of California, to take their business elsewhere.

"They had switched loan officers on us and the new one was insecure and couldn't understand what we were doing," Gilman recalled recently at Tracht's Los Angeles condominium, which doubles as headquarters for their company, Comtek Import/Export Ltd. "He was scared by our growth. So they told us to go find another bank. They wouldn't support us. They thought ours was a flaky business. It was a devastating blow."

As an international broker of fashionable soft goods, including luggage, shoes, and apparel, Comtek relies on short-term loans to purchase goods from one party, which it then sells to another party at a slight markup. These loans, usually secured by a letter of credit, cover the company's costs during the 60-day period before it receives payment from the buyer. Without them, Comtek had little chance of surviving.

Desperate for a new source of credit, Tracht, 30, and Gilman, 32, took out their phone book and started calling banks. They soon learned, however, that most bankers weren't interested in start-ups, no matter how profitable they might be. "We called 35 banks, and they all gave us the same answer," said Tracht. "Everyone said you have to have been in business for at least two years and have $100,000 in working capital. It was like they were all reading from the same cue card."

After a brief and stormy relationship with another Los Angeles bank, Tracht and Gilman went to see Sam Simons, a veteran loan officer and an executive vice-president of Mitsui Manufacturers Bank, and a man with some 40 years' experience lending to companies in the soft-goods business. Unlike the other bankers, Simons immediately understood the subtleties of Comtek's operation

"They told me what they were doing, and it made sense," the 68-year-old Simons explained amid the bustle of Manufacturers's office in L.A.'s garment district. "They seemed to understand soft goods and really wanted to get ahead. They knew the risks, but they were very careful. But I really can't say I made my decision from the numbers. In this business, it boils down to instinct: You have to have the smell."

Thanks to Sam Simons's sense of "smell," Tracht and Gilman are now happily ensconced at Mitsui Manufacturers. Their credit line has been boosted to $1 million, allowing them to participate in larger deals. Equally important, Manufacturers can meet their credit requests within 48 hours -- a critical factor in a business in which speed frequently makes the difference between losing and closing a deal.

"This is what a banking relationship should be," says Gilman, who expects Comtek's sales to top the $10-million mark this year. "They customize the loans for what we need. It's a personal relationship. You call up, you say, 'Here's what's happening,' and Sam comes in like a partner, not an adversary. At Manufacturers, it's more like a business relationship. They give us the money we need, and -- as we grow -- we become a better customer for them. With Sam, banking is a people business, not a numbers business."

Viewing banking as a "people business" has been crucial to the success of growth-oriented banks like Manufacturers. At a time when the entire banking industry is ferociously competing for the broad "middle market" -- a vague term covering everything from start-ups to $250-million-a-year companies -- these banks have set themselves apart by taking a highly personalized, customer-sensitive approach to commercial lending, and they have reaped the rewards. Manufacturers, for example, has seen its asset base grow from $3 million in 1962 -- the year it was founded -- to well over $1.6 billion today. And before its purchase for $174 million by the $71-billion Tokyo-based Mitsui Bank Ltd. in 1981, Manufacturers consistently ranked among the most profitable independent banks in the nation.

Nor is Manufacturers an isolated case. Well-run small and mediuim-size banks -- which account for as much as 75% of loans to businesses with sales of less than $2.5 million annually -- have consistently out-performed their larger competitors. In 1980, for instance, only 13.1% of large banks (those with assets of more than $1 billion) enjoyed returns on equity of 17% or more. Atthe same time, nearly 18% of medium-size banks (with assets from $100 million to $1 billion) and an outstanding 28.8% of small banks (with assets under $100 million) earned such high returns. And despite recent trends toward deregulation and interstate banking, a 1982 Federal Reserve Bank of Atlanta study found that small banks across the country have generally continued to gain market share.

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