Despite being at the helm of the small Columbia Bank, Thomas J. Kemly's anecdote is still appropriate.
He shared a story about a friend of his, a small business owner who banks with a national institution and needed a loan from there.
“He told me he needed an equipment loan of $100,000,” Kemly said. “And the documentation required — despite being a perfect customer for 20 years, so he says — included six years of tax returns … it ended up taking two months to do.”
Naturally, his friend blamed the bank for the delay.
“The sad part is, it probably wasn’t the bank’s fault,” Kemly said.
In truth, a small business owner like Kemly’s friend may not be able to find an easy, quick loan these days — regardless of what bank’s doors he or she is walking through.
“All banks (including a smaller institution) might have to go through that exercise to make a loan to you now,” Kemly said. “If a regulator walked through the door and saw us make a loan without that amount of documentation, we could all get put out to dry.”
And while Kemly’s story is merely anecdotal, he and others are confident it’s indicative of a larger trend.
“Here’s a small business owner looking to make a relatively simple borrow, and he’s asking himself: How did it get to the point where I needed to document incredible amounts of information to get a simple loan?” Kemly said. “We’re seeing that all the time.”
The regulatory principle that today’s more rigorous loan process comes from is one of better loan underwriting and reduced risk. Much of the stricter rules arrived after the 2008 banking fiasco.
The rules don’t discriminate across the size of the business, either. So a small business owner may have to do just as much paperwork for a loan as a much larger competitor.
“So the role of bankers has become educating small business owners about what used to be a simpler transaction,” Kemly said. “And we have to double or triple check our work.”
In Kemly’s view, all that extra time detracts in a major way from a small business owner’s efforts.
“(This) impacts the commercial customer,” he said. “(My friend) might’ve needed that loan at the end of the week, not two and a half months later. So that’s not good for business. And that may have an effect on the economy, too.”
James S. Vaccaro, CEO of Manasquan Savings Bank, agrees.
“It becomes a deterrent to the kinds of loans you would make in a normal environment,” he said. “Another problem with these regulations is that there’s no differentiation between smaller banks and larger banks. The one-size-fits-all regulatory environment is blatantly unfair.”
Vaccaro, however, is convinced there’s still a benefit to working with a community bank.
“Even though (lending activity) takes longer than it did historically, we still have those relationships; and it’s relationships that community banks are built on,” Vaccaro said.
As for the rules, Vaccarro says they can’t be used as an excuse for not getting things done.
“For one, it’s unfair,” Vaccaro said. “And secondly, small business owners don’t care. All they want to know is what’s happening with the loan they applied for and how long it’s going to take. And they expect a reasonable period of time when they submit all the documentation.”
Banks can be looked to for some potential signs that the recession’s wave is receding.
For example, there was a $6 billion increase in lending activity from 2013 to 2014, according to NJBankers. And a lot of it was on the commercial and industrial side.
Christopher Martin, CEO, chairman and president of Provident Bank, can attest to this.
He said his Jersey City-based financial institution is making many loans now, and that the appetite in the state for these opportunities is “bigger than we can even keep up with at the moment.”
“It started about two years ago when people started feeling a little more comfortable,” he said. “We’re seeing a lot of activity around the state that’s really picking up right now.
“Crystal ball? We have another year or two of positive things and then — guess what — the business cycle endures.”