As the economy continues to recover and grow, business owners are gaining confidence to borrow the money they need to fuel their expansion ambitions. They are looking for capital to purchase their offices or factories, to invest in new computers and factory tools, and to hire more workers to chase growth opportunities generated by an economy on the mend.
It's not quite that simple, of course. For every fiscally fit company with bankers banging down the door, there are those with heavy losses on the books, in need of a loan to erase the red figures introduced during the recession. Others aren't yet "bankable," and must hold the line on expenses — or find new sources of revenue — to allow them to take on debt.
These are the bankers those executives need to know — the commercial lenders who help decide whether or not a company is sound enough to earn a loan. Want to know what bankers are looking for? How about what to bring to the table when asking for a loan? Read on to get insight directly from some of New Jersey's top bankers:
TD Bank: Thomas Rau
Helping a client better diversify its revenue stream meant it was able to withstand loss of big customer
Competition among banks to lend to the most credit-worthy business borrowers is heating up across New Jersey, said Thomas Rau, TD's regional vice president of commercial and small-business lending in North Jersey.
And that means better lending terms for these desirable clients.
"We see a real aggressive play among the banks (to offer) aggressive pricing for the quality deals out there," Rau said. "It's a great time to be a borrower, particularly if you've got good solid credit and the desire to lock into long term fixed rates."
Rau also insists a business with a slightly shaky financial history can get a ticket to this liquidity dance, as "we are seeing rehabilitation taking place among small-businesses borrowers, and that is leading to confidence."
Well before seeking cash to expand, a business "should be building a relationship with a banker, so you're prepared to engage in the loan process," Rau said. "Many, many businesses clients need guidance and support."
Rau told the story of a long-term business client whose relationship with TD helped weather a crisis.
After many profitable years, this business lost money after severing ties with its biggest customer. But the business and TD saw it coming, and got out in front of it, Rau said.
"We were concerned that this customer was accounting for a significantly higher and higher percent of (the TD client's) revenue stream," Rau said. "We had been working with our client for several years to diversify their revenue stream."
So when that big customer demanded unreasonable terms, "they made the conscious decision to cut and run from that customer," Rau said. By that point, a diverse pool of new customers was generating profits.
Despite the loss that followed the departure of that one customer, TD continued to provide the business with working capital, "because we understand the story," Rau said. "We now have a customer that we are convinced will return to profitability."
ConnectOne Bank: Elizabeth Magennis
A community bank can go after smaller requests that might not be worthwhile for the largest lenders
As a community bank, ConnectOne can take the time to sit down with a commercial borrower that's hit a rough patch and try to make a deal work, said Elizabeth Magennis, executive vice president.
That's a difference from what they might be getting at larger lenders, she said.
"Where a large bank might say, 'No, we can't help you, the numbers just aren't making sense,' we will try to get to understand the business before making a decision," she said.
She said ConnectOne is getting new customers who've left those bigger banks "because they may be too time consuming, and not be as profitable for a larger institution." She has approved requests for lines of credit as low as $250,000; for a very large bank, that might not be worth the trouble — especially if there have been losses.
When the business history is spotty, "We will say, 'OK, what else can we do here, or what other collateral can we take to make us feel comfortable?' "
She recently approved a construction loan that included certain collateral and personal guarantees: "We were able to get comfortable with the loan because we knew the client and their wherewithal on a personal level."
Like any lender, ConnectOne wants to see a good, realistic business plan, and will advise clients on ways to improve, including cutting expenses or branching into new markets.
"If you are a flooring company that only installs floors, maybe you should think about refinishing floors, too," Magennis said. "You need to be flexible and change what you are doing."
PNC: Ted Knauss
Increased financial activity from lenders is a result of customer demand, improving jobs market
Loan demand is rising as more and more business owners decide "customers need more of what (they) produce," said Ted Knauss, PNC's commercial banking market manager for central and northern New Jersey.
"Companies are buying equipment, hiring more people and expanding into markets where they may not have been before," he said. "We've seen many companies be more financially active than in the past."
The recession's pain seeped into virtually every economic corner of New Jersey — with the possible exception of firms that help turn around unprofitable enterprises, Knauss said. So while he's not fazed when he sees losses on a potential borrower's books, he also want to see steps taken to bounce back.
He described a recent deal with a manufacturer now embarking on a growth cycle that illustrates how an improving economy and low interest rates are creating opportunities for borrowers and bankers.
The manufacturer's five-year commercial mortgage was coming due, so PNC refinanced it at a lower rate.
"And we also extended them a rather large equipment financing line of credit," Knauss said. "We financed their growth for what we anticipate to be their capex" — short for capital expenditures — "needs for the next five years." The total deal is more than $8 million — and the customer is moving to PNC from another bank.
That kind of improving health is becoming a trend, he said: "We definitely have seen improvement in our borrowers' finances, and they seem to be hiring."
Lakeland Bank: David Yanagisawa
For borrowers, problems are OK, but lenders want sustainable fixes, not just top-line salary slashing
David Yanagisawa, chief loan officer for Lakeland, wasn't surprised that businesses suffered losses from the deep 2008 recession and subsequent string of natural disasters, topped off by Sandy.
What matters to him is how these scrappy survivors have fought their way back.
"We want to understand the story: What actions did management take? How did they change to adapt to the new economy?" he said.
It's hard to finance a company, Yanagisawa said, "if they can't demonstrate that their return to profitability is something that is going to continue going forward. If a company can show us why they had the loss, and the actions they took to correct it, we certainly would love to take care of that company, because they've done the right things and seem to have a bright future."
On the other hand, it's tougher to make loans to "the ones that have just gotten along by the skin of their teeth, and really just by pure luck."
He's looking for companies that made sustainable changes — not just cutting top executive salaries to get the numbers up.
"You don't want gimmicky fixes — you want true fixes that make the bottom line better," he said. Some good ideas he's seen include moving to a smaller space, negotiating better terms with vendors and cutting off customers that don't yield sufficient profits.
Yanagisawa has seen companies take the risk of spending money to grow their way out of a slump. "I've seen companies be aggressive and hire new salespeople for a product line they want to push out. It doesn't always have to be about cutting back expenses — you can spend a little money and help the company realize a lot more."
Among the steps some of his clients have taken:
Provident: Don Blum
The difference maker for how fast companies rebounded seems to be how quickly they attacked expenses
Expansion is the buzzword for Don Blum's clients, according to the bank's chief lending officer.
"It speaks to the confidence that's beginning to emerge out there," he said. "Our (lending) pipelines are probably the strongest they've been in a number of years."
The clients that emerged from the slowdown the strongest, he said, typically attacked expenses most aggressively. In some cases, "We saw top-line revenue going down 30 or 40 percent — and if they were not cutting their expenses by a similar amount, they lost money," Blum said.
And there are still plenty of companies "that are struggling, depending on what industry they are in or how healthy their company was to begin with," Blum said. "So they may not really be bankable at this point."
There is good news, however.
"The majority of customers that did have difficulty during the recession have rebounded quite a bit," Blum said. "The trendline is improving nicely for them — and they are the ones that are expanding their business now."
One Provident customer that does heavy road construction is buying new equipment after winning some major contracts from the state. The bank also finances several pharmaceutical companies that are expanding. And while Sandy certainly hurt many businesses, Blum said the bank lends to some lumber suppliers who are seeing a surge in demand as the Jersey Shore rebuilds.
"The local contractors are all doing very well right now at the Shore," Blum said. "This is putting a lot of trades people to work and it is helping the (construction material) suppliers."
He said Provident is seeing increased loan demand for multifamily housing construction, which has been among the strongest sector of the real estate industry. And the bank's health care team is lending to physicians to acquire new equipment and office space.
Valley National Bank: Dorothy Kahlau
With the worst days over, the deal pipeline looks healthy for lenders across the Garden State
Whether you're talking about the recession or Sandy, the worst days are over, said Dorothy Kahlau, first senior vice president of commercial loans at Valley.
"We are out there talking to (current) customers and prospective customers, and trying to get a clear understanding of the direction they are taking," Kahlau said.
For Valley, she said, the key metric is cash flow: "Is the cash flow there to support not only the current level of indebtedness, but also any new debt they are taking on?"
If the potential borrower had a year or two of losses and "we understand where the losses came from" — especially in the case of a one-time event like Sandy — and the recovery is underway, "then absolutely, we should be talking, especially if there were historical years of profitability."
She sees Valley on track for an upturn in lending before the end of this year, and into 2014.
"We have a good pipeline of deals" and should "see some good bookings before year end," Kahlau said.
Among the deals Valley has approved lately: new retail construction, the acquisition and renovation of a warehouse, and the purchases of physician practices.
For the tenacious New Jersey businesses that have weathered the recent slump, the road to recovery has often included cost cutting, she said.
"You hate to see it, but there have been some layoffs," Kahlau said. Companies also have put off hiring and have been renegotiating their insurance contracts, cutting back on entertainment or training dollars, sub-leasing office space, and refinancing debt in order to bounce back from the downturn.
"Month by month, confidence is returning to almost every business we speak with," Kahlau said.
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