Bank On It
● By Robert Frey
Key Players In The Commercial Development Process
By Sherise Henry
Commercial Development brings with it a sense of excitement for community members who want to know what’s new in town, it’s a vehicle of opportunity for area business leaders and agencies who often team up and pull resources to bring a vision into fruition, and it also serves as a platform for many political candidates who dare to promise new jobs for persons who make up their voting base.
None of the fore mentioned persons can attain a favorable end to their hopes for commercial development without one key player…the lender. Banks are a major piece of the growth puzzle for communities because it’s their standards and judgment that determine whether a good idea on paper has what it takes to become a formidable idea in reality.
We spoke with three area banks on the commercial development lending process and how much activity is taking place in the New Iberia area. Here’s what they had to say.
Teddy Eastin, a New Iberia native who is the Senior Vice President Commercial Lender at FM Bank describes the process. “Our lending process usually consists of meeting with a commercial officer to review the needs of the client. The client provides financial information to review the cash flow of the proposed loan. The customer normally provides business and personal tax returns for the past three years, a personal financial statement, company income statement and balance sheet, along with the purpose of the loan, and cash flow available to repay the loan,” explains Eastin.
Benny Menard President and CEO of Community First Bank adds that there is often an Approval Committee that looks over the application. President of First National Bank Damon Migues says the amount of thought an applicant puts into his request makes a difference. “A well thought out and complete business plan as well as an adequate down payment and ability to repay are keys to packages moving to the approval phase easier and quicker,” says Migues.
As promising of an idea as new business in the area may be, bank lenders are the ones who get down to the details when it comes to giving a thumbs up or a thumbs down on whether a business plan sees the light of day. FNB President Migues explains some of the pitfalls potential business borrowers’ face that would make him turn down a loan. “Most of the time it’s because the application is incomplete. There may also be a lack of budget or unrealistic projections. Another problem is a shortage of down payment or working capital,” said Migues. First National Bank and FM Bank say commercial development borrowing is up slightly this year. “About $20 to $30 million was given towards commercial development projects with FNB statewide,” said Migues. “FM Bank loan funding is up about 10% from last year. We fund about $40 million in new loans annually,” says Eastin.
Menard with Community First says there is a difference between corporate lending and community bank lending he says Community First has experienced decreased lending over the past year. “We have budgeted total commercial loan increase of 5 percent for 2017. We are above that target amount at this time. I can tell you that number is down from the previous year. Although we are just in the budget process for 2018, I am expecting that number to decrease again,” said Menard. Menard also states that quite a bit of Community First commercial loan applications come from the south Lafayette area.
Financial education is a key component in what may make a commercial loan application press forward. When asked if commercial borrowers are aware of the state’s tax incentives for businesses Migues states, “Some do but those that do have had difficulties with executing the initiatives,” Louisiana’s One Acadian website lists 13 tax credits and incentives and five different tax programs and initiatives to help inspire area business. They are listed in detail at www.oneacadiana.org.
Banks themselves can also serve as a how to source. FM Bank, for example, prides itself on being able to give personal attention and direction to meet financial goals. “We recently printed a piece to provide information to clients including items they may need to obtain a loan. The list appears like this: customer name and contact information, most recent two years of personal /business tax returns copy of driver’s license(s), most recent 30 day pay stubs, most recent two years w2s/1099s, the purpose of loan and the fact that we may ask them to provide these documents once we have received their application and we have provided them with the required disclosures,” says Eastin.
Forbes magazine gives seven basic tips for applying for a commercial loan they can be found at www.forbes.com/aileron2014/10/02/07/7-steps-to-getting-a business-loan. Among their list of tips is some very specific advice on credit.
Know the score. Lenders still look at personal credit scores as a way to judge the reliability of the principals who are borrowing the money. It is important to know what lenders look for and how the scores compare to those expectations.
• Credit score: A credit score of above 650-700 is considered acceptable, but does not guarantee a loan. Most lenders will look for a credit score that is at least in the 700-800 range.
• Debt to income: Personal debt payments should not be more than 33 percent of gross monthly income.
• Time in business: Lenders give unsecured working capital lines and term loans to businesses that are over 2 years old and have a reliable record of incoming accounts receivables.
• Report on industry risk: Industry risk is rated based on the government SIC codes which are ranked. A small business owner needs to find out how their industry is rated.
• Report on cash flow: The higher the operating cash margin, the better the chance is for a business to survive slower market conditions and ensure long term survival and growth. In the final analysis, most lenders give money based on the company’s cash flow since it measures the ability to successfully repay the loan
Of the banks we spoke to the average time for a commercial development loan to be processes is 30 to 60 days.