Most entrepreneurs wouldn't want to hear “no” uttered even once in a conversation with a banker about funding their venture.
Frank Sorrentino, CEO of Englewood Cliffs-based ConnectOne Bank, said that his fear in a business lending space increasingly influenced by the ease of accessibility of fintech is that they won’t hear enough of it.
“Sometimes, you have to hear that you may be borrowing money for the wrong reasons,” he said. “A third of the time, I’m talking entrepreneurs out of doing something. And I’ve had people tell me that’s the most valuable thing.”
“No” is exactly what Bob Wojtowicz, founder of Natirar and Ninety Acres, came to appreciate hearing from Sorrentino in getting his long-delayed resort and real estate project at the historic Somerset County estate funded.
In meeting with ConnectOne Bank, Wojtowicz was looking at financing primarily the residential part of his project.
Sorrentino’s counter was that he should be instead be prioritizing financing the renovation of the estate’s banquet and catering hall to capitalize on a robust market for wedding venues.
“He said, ‘You’re already doing the hard part, the restaurant, you need to do the banquet and catering; for every day that you’re not open and doing that business, there’s a wedding you don’t get back,’ ” Wojtowicz said. “When I heard that, it was like being hit with a brick — a CEO of a bank was talking to me as a business partner.”
Two years removed from that meeting, the business has most of this year’s weekend weddings booked up and is already starting to fill next year’s wedding schedule, Wojtowicz said.
It shouldn’t be a surprise that a bank leader might have good perspective on what a small business should focus on, given that these institutions see tens of thousands of projects across the state.
But Wojtowicz was somewhat cynical after many years of searching for a partnership with a financing institution. At one point, back in 2007, he even had a deal that was about to be finalized with Lehman Bros. — a story with an ending that everyone already knows.
“I was told at a meeting (late that year) that we would not be closing (on the loan) because syndication markets in Germany had dried up,” he said. “I didn’t know it at the time, but that it was the beginning of the end for Lehman.”
Watching that deal unwind put him in a situation unique to the time — a failing financial sector that almost overnight closed down on its openness to lending.
Yet, Sorrentino said small business owners coming to community banks from bad experiences with larger institutions is still a regular occurrence.
“From our perspective, it’s the gift that keeps on giving,” he said. “We get lots of opportunities with folks that have a vision or passion to do something but end up with a larger institution that isn’t invested in a long-term relationship.”
But for every satisfied entrepreneur is an anecdote of a startup being turned away countless times from even the most locally focused of community banks in this post-financial crisis era.
Sorrentino is no stranger to seeing accounts of these stories in the news. He argues that it comes out of a conflation between borrowing on debt and on equity.
“It has more to do (with) the undercapitalized position of the business than it does with the bank not cooperating in financing them,” he said. “Banks are not in the position of taking on the same risk as the entrepreneur. We are not making the same risks that (Wojtowicz) is in this enterprise — with the level of capital and equity he’s putting into it.”
If there’s a lesson to be taken from Wojtowicz’s approach to getting a loan from his bank, Sorrentino said, it’s to do a lot of homework before having a conversation with lenders.
“He didn’t just come in and half-heartedly tell us what he was going to do,” Sorrentino said. “He had a plan backed up by facts, good projections, schematics — a whole well-thought-through process that he could convey to us in a short period of time.”
It’s about knowing the potential pitfalls, he added, and leaving nothing unanswered.
“The truth is, the bank isn’t going to roll out the carpet for you,” Sorrentino said. “But we can be great partners for the right purpose.”