During the financial crisis, when banks stopped lending to small businesses, Robert Berman’s company, Cinium Financial Services, stepped into the gap. Since 2009, his company has provided surety bonds and working capital to hundreds of small contractors and builders. Berman’s innovative method of underwriting relies on an old-fashioned metric that many lenders have long abandoned: character.

My dad was a small general contractor who made his living building additions for hotels. When that work dried up, he tried to bid on a project for the New York Department of Transportation, but the work required a bond.

I was 15 years old and sitting at the kitchen table when the insurance agent came by to tell my dad he wasn’t creditworthy enough for the bond. My father was offended, because he’d been in business for decades and had a stellar reputation. He’d never had a bad job. He was more than capable of doing the project. But, to them, his experience was less important than his financial statements.

I was thinking about this after the financial tsunami hit in 2008 and 2009, when a lot of people who had good businesses got hurt for things beyond their control. That’s when I co-founded Cinium with my neighbor, Jeffrey Camp, who had worked for Morgan Stanley and was a partner at a hedge fund.
In this day and age, you are judged by numbers, formulas, credit scores. It seems like an unfortunate way to assess whether or not they should be given a shot to do something. Many years ago, lending used to be character based. Small banks knew their customers and their families. The bank president’s children went to school with your children.

We look at small contractors the way any lender would. But we don’t automatically reject you if your credit score is too low. Our attitude is, Let’s find out why the score is low. Maybe the family had a medical issue and their insurance wasn’t sufficient to cover the medical bills, and things were turned over to collection. That doesn’t mean you’re a bad person. First and foremost, we find out if our client is who they say they are and what their experience is. If it seems that they are in a little bit of a difficult time, we want to understand why and figure out if we can help them get back on their feet. The main focus for our underwriting criteria is whether or not we believe the contractor can successfully meet the specific risk. That has worked very well for us.

There is a third-generation family-owned contractor in the Philadelphia area. The company had about $30 million in revenue per year and 150 to 200 employees. Then, in 2008, it got involved in a project that went upside down. In 2009, because of the financial tsunami, they did not get paid, and revenue fell almost 85 percent. The owners had wives and had kids in college-;-their whole lives were wrapped up in the business. But they could not build the volume of the business back up, because they could not get bonding to bid on contracts. We got to know them. We stepped up, and they are doing fine today. If we had we not been there, they would have filed for bankruptcy. 

Our loss ratios are well below the industry average, and our clients are people most of the industry would never go near. I think we have proved that you can provide credit to people, who, on paper, might not look as if they deserve it. At the end of the day, they do.