The Best Small-Business Banks in America
Chances are, you could turn your bank into one of the best. Because it's not the bank, but the relationship with your banker, that counts. Here's how smart CEOs take the initiative
Last winter, in our January Faxpoll (No. 04920241), we invited readers to tell us about the frustrations they were having with their banks. The responses poured in. Hundreds of small-company owners vented their spleens -- about everything from what they saw as unreasonable lending standards, to banker arrogance and poor service. But interspersed among those opinions were a significant number of replies from people who had nothing but praise for their banks and their bankers. That piqued our interest. What, we wondered, were these company owners doing that the rest of us could learn from? What follows are some answers to that question.* * *
"I doubt if I have a handful of customers who present information the way she does."
-- Jennifer Norrid's banker
Jennifer Norrid had no illusions about her knowledge of banking when she met for the first time with a lending officer at First National Bank in Albuquerque, in early 1986. An energetic woman of 24, Norrid had been running her own computer-training business -- a three-year-old business she'd launched on $248 in savings. She had recently moved her $200,000 business into a tiny rented office and had already talked to a succession of bankers about borrowing $65,000 to create and equip a training room and to hire her fourth employee. Yet in the space of three weeks, three or four lenders had told her, in no uncertain terms, that she wasn't bankable.
"Each time, I'd ask the banker, 'What would it take for you to approve this loan?' " Norrid remembers. But nobody had any ideas; some simply shrugged.
Before her appointment with Michael Hartman from First National, Norrid spent hours at the law library of the University of New Mexico, researching how a business qualifies for a guaranteed loan from the Small Business Administration. From her queries, she also knew Hartman's bank was one of the two biggest SBA lenders in the state, and Hartman was one of two or three lending officers working on those loans.
Hartman, who had begun lending four years earlier after a brief stint as a state bank examiner, agreed to give Norrid's proposal for an SBA loan a close look, which in itself was a breakthrough. Although Norrid had limited training and experience, she had glowing client references, which Hartman liked. A couple of days later, he called her with news: No, he couldn't lend $65,000 -- her operating record was too erratic. But he was willing to consider a smaller loan -- one for, say, $48,000 -- provided she could pull together $15,000 in cash as collateral. The collateral, he explained, would reduce the level of risk for both the bank and the SBA. Norrid didn't have assets of her own, so Hartman made a suggestion: Did she know anybody who could deposit money at the bank? She thought of two possibilities, and both agreed to buy certificates of deposit. Two weeks later, Norrid had her money.
Since then, PC Support has grown to around $1.2 million in revenues and 34 employees. One feature that's marked Norrid's dealings with the bank is candor. "She doesn't just tell me when things are going well," says Hartman, who remains Norrid's primary contact at First National, a locally owned institution with $1.3 billion in assets. "I hear about the problems, too."
Shortly after getting her SBA loan in 1986, Norrid ran into a streak of bad luck. A roofing problem postponed the completion of the new training room; then a significant consulting contract fell through; on top of all that, Norrid had some health problems. Although she informed Hartman about each development, the cumulative effect worried her so much that while she recuperated from surgery, she set up an appointment with Hartman to talk about her options. She was $40,000 behind her sales projections, she told him, which meant she might have trouble meeting her loan payments for the next few months. Could she borrow another $5,000 until things picked up? Unfortunately, Hartman said, he wasn't able to make loans for that purpose. But he could help her write a letter to the SBA explaining her situation. Based on that letter, the SBA agreed to let her postpone principal payments for three months, reducing her cash-flow needs by about $600 a month.
Norrid doesn't wait until she's in a jam to initiate discussions with the bank. In 1989, for example, PC Support was preparing a bid on a big, three-year consulting deal, one that would have more than doubled the company's billings. "Of course, we didn't know if we'd get it," Norrid says, "but I wanted to know what might happen if we did." Once again, she asked Hartman if the bank would lend her money to support the additional business. He indicated that the shortage of collateral would present some problems. By the time Norrid got word that PC Support had won the business, Hartman had personally scoped out some other possibilities. He directed her to a special loan-guarantee fund, managed by the city of Albuquerque, which, in short order, approved an $85,000 line of credit.
Altogether, Hartman is responsible for some 114 business relationships for First National, which means that on some level, customers are constantly vying for his time. But Norrid doesn't have a problem getting the attention she needs. "When she calls, I know she has something relevant to tell me," says Hartman. "I'd say she's one of the best-organized customers I have, and it makes doing business with her very easy."
Until a couple of years ago, when she hired a new controller, Norrid sent the bank financial statements quarterly. Now she sends information monthly -- a balance sheet, an income statement, and a cash-flow analysis. Hartman also receives two pages of PC Support's financial ratios (tracking performance over a six-month period) and a page of graphs. How does Norrid know which ratios to include? A year or so ago, she asked Hartman which ones he wanted.
"I doubt if I have a handful of customers who present information the way she does," says Hartman. "She'll tell me in a letter or over the phone about deviations from her projections and what caused them. So when it comes time for annual reviews, there's not a lot of work to do."
Norrid says that over the years she's come to appreciate Hartman as a business adviser as well as a banker. Occasionally, she says, he'll feed her names of customer prospects, and she'll often seek his advice on preliminary plans. "I'll ask him, 'What kind of money is available for x?' " And she isn't afraid of showing him first drafts of her budgets just to hear his reaction. "If there's something he wants me to substantiate more fully, I want to hear it."
Norrid says she didn't realize how much she valued that kind of feedback until earlier this year, when she applied for a new $70,000, five-year SBA loan under a special program in New Mexico. She was thinking about updating some equipment, and Hartman had encouraged her to refinance some of her more expensive debt, since interest rates were so low. But because of an arcane technicality involving her previous SBA loan, it looked as if the SBA wouldn't allow First National to originate the new one. "Michael and I sat down and figured out the costs of doing the SBA loan at 7.75% versus a conventional loan at 9.5%," Norrid says, "and we were looking at a difference of around $1,200 a year." As a favor, Hartman gave her names of lenders at other banks who might have an interest in the lower-rate deal -- he even called ahead to them; and when Norrid followed up with meetings, two banks said they'd do the loan, provided she moved her other accounts.
But in the end Norrid chose to stick with First National. She says she made her decision before she complained to local SBA officials about the absurdity of having to change banks to take advantage of the best financing terms. (She ultimately persuaded them to change the rules and allow her bank to do the deal.) "A new banker," Norrid notes, "wouldn't have known what it took to build PC Support. I concluded that the relationship I had was worth a lot more to me than $1,200."* * *
"We're always talking back and forth. There's nobody I know who does a better job of watching money than Marilyn."
-- George and Marilyn Krasnov's banker
When George Krasnov started Gee Kay Knit Products Inc., in 1983, one decision he felt lucky he didn't have to make was which bank to choose. Ever since he and his wife, Marilyn, had settled in Allentown, Pa., in the early 1960s, they'd done business with Merchants Bank. It was, in George's view, everything a local bank should be. It had the mortgage on the Krasnovs' home and each of their business accounts. (George had a textile business, and Marilyn owned a retail store.)
"Our bankers knew us, and they knew what we did," says Marilyn, who now oversees the financial end of their $4.5-million cotton-T-shirt and garment business. But in late 1990 the relationship began to deteriorate. Although Merchants had been bought by a bank holding company in New Jersey a year earlier, it wasn't until Hans Kuring, Gee Kay's lending officer of three years, left the bank that the petty aggravations multiplied. With Kuring gone, says George, "we felt we were just a number."
At the time Gee Kay was gearing up to restructure its overall debt. To accommodate growth, the Krasnovs hoped to consolidate two loans at two different banks and boost their total credit availability from $200,000 to $400,000. Despite their long history with Merchants, the bank was cool to the idea. The new lending officer even said she didn't like lending to textile businesses. Kuring, on the other hand, who was joining a new bank on the other side of town, liked the proposal. And in November 1990, within days of the grand opening of Ambassador Bank of the Commonwealth, the new bank's loan committee approved the Krasnovs' $400,000 credit line.
Kuring, 37, had seen the business evolve from a three-year-old, 8-person manufacturer that got by with a $35,000 credit line, to one employing more than 20 people and relying increasingly on sophisticated tools for planning and fabrication. While the local textile industry had taken some hits in recent years and some businesses had failed, the Krasnovs, by relying on technology and quality control, had managed to grow theirs and make money. Kuring had examined Gee Kay's computer-aided-design equipment and its sewing areas. And he was impressed with the way Chuck and Geoff, the Krasnovs' sons, had taken charge of key aspects of the business after getting experience with bigger textile companies. As managers, he says, "they knew what they needed to do to be successful."
When it came to pitching the Krasnovs' deal to Ambassador's loan committee, Kuring didn't just talk about the people involved; he also presented numbers. "We looked at three years of balance sheets and income statements," he recalls, "and from the ratios and trends, you could see this was a well-run company on solid footing." To their credit, Kuring notes, the Krasnovs weren't taking lots of money out of the business; compared with a lot of businesses he'd known, leverage was low. "They were reinvesting profits."
The loan committee liked the fact that the Krasnovs had figured out how to do well in a tough industry. So when it came time to OK the loan, the bank agreed to cut Gee Kay a little slack. While the Krasnovs had been required by their previous lender to do extensive weekly reports on accounts receivable, Ambassador said it would be happy with monthly information. "Based on what they'd done, we trusted them," Kuring says.
Unlike Norrid, the Krasnovs show their banker complete financials just once a year. At the end of Gee Kay's fiscal year, Kuring gets a balance sheet, an income statement, and a budget for the upcoming year. Because of all the communication that takes place during the course of a year, Kuring maintains, there's never been any reason to ask for more. "If a problem ever comes up, I know Marilyn will call," he says. "We're always talking back and forth. There's nobody I know of who does a better job of watching money than Marilyn."
As for the Krasnovs, "One of us is at the bank almost every day," says Chuck, who heads up operations.
When you get the Krasnovs talking about Ambassador Bank, their enthusiasm knows no bounds. They all like the idea that the $52-million-asset bank was founded -- and funded -- by successful local businesspeople. And they're impressed by the level of personal service.
"It's dumb little things," notes Chuck, who recently joined the bank's customer-service task force. When the committee makes recommendations for ways to improve services -- more lighting in the drive-in area, more seating in the lobby, improved coffee in the waiting area -- the bank takes note.
The Krasnovs have been willing to put up with some inconveniences to maintain the relationship they feel has been so helpful to their company. When they first began shifting their accounts, for example, they had to wait almost a year for Ambassador to offer MasterCard and Visa (which Gee Kay needs to facilitate customer payments). Other services (like trusts) have had to be handled through affiliated institutions on the outside. Nor is the location of the bank -- a 15-minute drive from Gee Kay's offices -- ideal.
At Gee Kay's current growth rate, it's entirely possible that the company will outstrip Ambassador's $750,000 lending limit within a couple of years. But that doesn't seem to worry anyone right now. "We have enormous amounts of confidence in these people," says Marilyn. "If we ever get to the point where we need more money than they can lend, we feel they'll find a way to help us. And who knows? The bank may grow as fast as we do."* * *
"In a way, they've made us part of their team. . . . they've known lots of people here, and they've had lots of advocates within the bank."
-- Evan Corns's banker
In his 16 years of owning a business, Evan Corns has learned that a banking relationship isn't something you can take for granted. But unlike Norrid and the Krasnovs, Corns, who owns a $46-million truck-equipment-distribution business based in Cleveland, has never hitched his wagon to just one banker. Over the years, he's made a point of cultivating several bankers within the same bank at the same time. Corns has lived through more banking uncertainty than other CEOs. Since he's been in business, his bank (which now goes by the name of National City Northeast) has changed hands three times. Last summer, moreover, his principal lending officer died suddenly of a heart attack. But in the midst of all those unpredictable events, America's Body Co. has never been without a banker who knows the company. "You hear lots of horror stories about lenders deserting customers," Corns notes, "but our bank has stood by us through thick and thin."
Corns's commitment to good banking relations began when he launched his business, in 1976. During an open house celebrating his start-up, Corns, now 54, remembers taking a stroll around the equipment yard with his father, who had once run a large transportation business. "I was showing him the various products and mentioning the names of my key suppliers when he said, 'Wait a second, what about your bank? It's your most important supplier.' "
Early on, Corns made a habit of sharing information with his bank. Every quarter, whether he needed money or not, he'd set up time with his lending officer -- and as often as he could, with the lending officer's boss -- to go over his balance sheets and income statements. Sometimes they'd do it over lunch, sometimes at the bank. Besides the numbers, they'd usually discuss other things, too -- new product lines Corns was adding, new customers, and how the market was shaping up. "I'd tell them the same types of things I'd tell my outside board of directors," he explains. Rather than filling the bankers in after a decision was made to, say, expand into another city, Corns discussed it beforehand. "We'd show them lots of information about what it would do for us and how we thought it would impact our cash. And then we'd ask them what they thought."
Corns's bankers appreciated being included in the early discussions. Not only did it give them some advance notice on ideas America's Body was contemplating, says Tim Fitzwater, the bank's se-nior vice-president in charge of corporate lending, "it also helped build a feeling of confidence in their ability to manage."
In 1985, with his bankers' blessing, Corns opened a new division in Washington, D.C. As the business grew from $14 million to $28 million over the next four years, the company relied heavily on its $3-million line of credit to finance inventory and receivables. But then the recession hit with fury. "During late 1989," recalls Phil Ridolfi, chief financial officer, "the bottom fell out of the domestic truck market." Suddenly, the company went from record sales and profits to declining sales and vanishing profits.
Ridolfi and Jim Crouse, the lending officer at National City, talked almost daily about what America's Body was doing to cushion the impact of what might be a long slump. In a cyclical, capital-equipment business, Ridolfi explained, there wasn't a lot the company could do except invest in ways to become less cyclical. Corns had already begun zeroing in on the potential acquisition of a truck-equipment business that exported most of its products. In the winter of 1990 he set up a special meeting to run the idea by the bankers.
For Corns, the more bankers at various levels who attended this meeting, the better. In addition to Crouse, four other officers (including the chairman of the $1.2-billion bank) showed up. Corns walked them through his logic: the export company was for sale; it was a business he had known for years; and, most important, here was an opportunity to smooth out the business cycles. Ridolfi, in the meantime, showed them lots of numbers -- profit-and-loss statements under several sets of assumptions as well as different ways of approaching the deal.
At the time Corns wasn't even seeking more money, but that didn't keep the bankers from asking questions. Who within the company would be in charge of the export activities? How did the financing cycle for exports compare with the domestic cycle? And which way was Corns inclined to structure this acquisition? Corns assured the bank that the people who had run the export operation would continue to run it and that, in the past, the business hadn't required a lot of money. As for the deal structure, Corns said he was thinking about buying assets instead of stock. The bankers agreed that an asset purchase made the most sense. At the right price, they thought, the deal looked promising.
When Corns bought the business, in June 1990, the export market seemed robust enough to offset at least some of the weakness in the domestic market. But within five weeks, as buyers in the Middle East awaited what might happen following Iraq's invasion of Kuwait, orders were frozen. The slowdown, coming so soon after the acquisition, was disconcerting. But Ridolfi and Corns kept Crouse informed. By January 1991, even before the Persian Gulf War had begun, the export business was picking up. "The quoting activity was exploding," says Ridolfi, "and it dawned on us that we might need more money to fill the orders." So Ridolfi and Corns went back to the bank for another meeting. This time, Ridolfi says, "we made it clear we wanted all the money we could get." At a minimum, they wanted to raise the ceiling on their line of credit from $4 million to $6 million.
The meeting, which took place in National City's Akron offices, lasted about two hours. This time there were four bank officers (including the president) seated around the table. The bankers wanted to know about the prospects -- who were they, and how did Corns know he'd be able to nail down the orders? How much risk was associated with the receivables? How many of the customers would have letters of credit? To help answer the questions, Corns brought along the export manager from the new division and all the backup he could muster.
It was not an auspicious time to be going to any bank for money. Many banks, under pressure of the regulators, were pulling way back. As Ridolfi noted, "You'd pick up the newspapers and the bank examiners were swarming all over."
Indeed, says National City's Fitzwater, "most banks were feeling the pinch. And we weren't immune to that. We chewed on this proposal for a long time." But in the end the bank's loan committee decided that upping the line to $6 million made sense. "The bankers went way out on a limb," Ridolfi claims. "We could never, ever have gotten this kind of money from a bank that didn't know us and where we were coming from."
As far as Fitzwater is concerned, one of the things that's distinguished Corns and his company over the years has been their readiness to involve lots of people in the bank. The importance of that came into sharp focus, tragically, in July of last year, when Crouse, the company's lending officer of five years, suffered a fatal heart attack. "It was a huge loss," says Corns. "Jim Crouse really understood what made us tick." Yet within a few days, the bank was able to assign two bankers, one of whom Corns and Ridolfi already knew.
"In a way," Fitzwater offers, "they've made us part of their team. Even when the business was much smaller, Evan Corns and Phil Ridolfi were never afraid to communicate with the individuals within the bank who would make the decisions. They've known lots of people here, and they've had lots of advocates within the bank. And it's really paid dividends for them."
WHAT TO LOOK FOR IN A BANK
Trying to find a good small-business bank? The truth is, despite what bank advertisements say, many banks aren't interested in small companies. Since there are some 14,000 banks in the United States, we can't tell you which banks are best in Tampa, or Topeka, or wherever it is your company is located. But based on what business owners have told us, here are some of the bank and banker qualities we think are worth searching for.
Banking Knowledge Few bankers will intentionally lead you astray. But Dan Lang, co-owner of Nature's Warehouse, a $6-million baked-goods business in Sacramento, recently discovered that some bankers have a tighter grip than others on what's possible in a given situation. Lang and his partner recently met with lending officers at several banks to try to get $1 million in financing to help buy Nature's Warehouse. But only one -- the lending officer at Sacramento Commercial Bank -- "said right away he could do it as a 10-year SBA loan. Without hesitating, he knew what he could and couldn't do."
Sense of Urgency "Banker's hours" may be a fading notion, but a CEO's idea of a "quick turnaround" and a banker's are often days, even weeks, apart. Tom Kinder, co-owner of Pure Podunk, a bedding-products mail-order business in Sharon, Vt., found that his bankers at Vermont National Bank were able -- and extremely willing -- to meet his compressed timetable for a recent $100,000 loan. Kinder says he even got calls during evenings at home, updating him on the progress.
Teaching Talent Many bankers can't -- or don't want to -- articulate what they expect from customers and how the bank makes its decisions. But Dwight Mulch, president of three-year-old Preferred Products Corp., a building-materials distributor in Burlington, Iowa, says he gets both types of information from his lending officer at First Star Bank and has benefited greatly. "When I was starting," says Mulch, "he practically led me around by the nose. He showed me what to put in the plan, and he still tells me how the system works."
Industry Knowledge Whatever industry you're in, it helps to have a banker who has had some exposure to your type of business, says Dave Sanger, president of Resource Solution Group, a computer-consulting business in Southfield, Mich. Sanger's lending officer at Manufacturers Bank, in Detroit, "knows we don't have the same kind of assets as a retailer or a manufacturer," Sanger says, "and she knows the terminology."
Financial Stability Given a choice, Kevin Whalen, chief financial officer of Twin Modal Inc., a Minneapolis transportation-brokerage firm, didn't pick the bank that was offering the most aggressive deal. And it's a good thing, too, he says: "That bank has had real problems with the regulators and has pulled way back." Before selecting Marquette Bank, in 1989, Whalen, a former banker himself, did spreadsheet comparisons of several banks, comparing returns on assets, capital-to-asset ratios, and so on. "I felt that, in the long run, we'd be better off with the most conservative bank around."
Managers with Backbone Banks have policies, notes Mike Walker, president of Walker Communications Inc., a public-relations firm in Scottsdale, Ariz. "But you want to have a manager with the courage to override them if it makes sense to do so." Walker's branch manager at First Interstate Bank of Arizona, for instance, allows him to draw on checks immediately after they're deposited and often acts as a troubleshooter for him within the bank. "I don't know what the manual says," offers Walker, "but you need somebody who can take a stand." *
-- Research assistance provided by Karen E. Carney and Phaedra Hise
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