On February 4, 2010 the Federal and State examiners issued the joint statement included here.

I won’t bore you more than the reading of this official statement already does, but suffice it to say that in practice, when the examiners arrive at a fine well run community bank, the treatment is not consistent with promoting lending to small businesses.

If you cannot bear to read the entire statement, just read the last two sentences.  I think community bankers will agree that these sentences will come as a surprise to field examiners!

Our entire economy is built on the backs of small businesses and our community banks are our first line of defense.  What is good for community bankers is good for small businesses and what is good for small businesses is good for America.

For those of you who genuinely care about small businesses, I will write more later about what we need to tell our government, and hope to heaven they will listen.

In the meantime, if your community banker is tied up with regulators and simply cannot increase your line or make your working capital loan, there is a chance we can help.  We will try to step in the gap until your bank gets the liquidity and freedom it needs to lend again.

Your difficulty getting funding may well not be your fault and it certainly is not the fault of your banker.  But together, we can make it through.

Here is the Interagency Statement:

“Interagency Statement on Meeting the Credit Needs of Creditworthy Small Business Borrowers

The federal financial institutions regulatory agencies1 and the state supervisors 2(collectively, the “regulators”) are issuing this Interagency Statement on Meeting the Credit Needs of Creditworthy Small Business Borrowers (the “Statement”) to restate and elaborate their supervisory views on prudent lending to creditworthy small business borrowers.3

This Statement builds upon principles in existing guidance, including the November 2008 Interagency Statement on Meeting the Needs of Creditworthy Borrowers and the October 2009 Policy Statement on Prudent Commercial Real Estate Loan Workouts.

The regulators note that while the October 2009 statement focused on commercial real estate, many principles articulated in that guidance are applicable to small business lending.

Some small businesses are experiencing difficulty in obtaining or renewing credit to support their operations.4 Between June 30, 2008, and June 30, 2009, loans outstanding to small businesses and farms, as defined in the Consolidated Report of Condition (Call Report), declined 1.8 percent, by almost $14 billion.5 Although this category of lending increased slightly at institutions with total assets of less than $1 billion, it declined over 4 percent at institutions with total assets greater than $100 billion during this timeframe.

This decline is attributable to a number of factors, including weakness in the broader economy, decreasing loan demand, and higher levels of credit risk and delinquency. These factors have prompted institutions to review their lending practices, tighten their underwriting standards, and review their capacity to meet current and future credit demands. In addition, some financial institutions may have reduced lending due to a need to strengthen their own capital positions and balance sheets.

Supervisory Expectations

While the regulators believe that many of these responses by financial institutions are prudent in light of current economic conditions and the position of specific financial institutions, experience suggests that financial institutions may at times react to a significant economic downturn by becoming overly cautious with respect to small business lending.

Regulators are mindful of the harmful economic effects of an excessive tightening of credit availability in a downturn and are working through outreach and communication with the industry and supervisory staff to ensure that supervisory policies and actions do not inadvertently curtail the availability of credit to sound small business borrowers.

Financial institutions that engage in prudent small business lending after performing a comprehensive review of a borrower’s financial condition will not be subject to criticism for loans made on that basis.

1 The federal financial institutions regulatory agencies consist of the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Office of Thrift Supervision, and the National Credit Union Administration (collectively, the “agencies”).

2 The state supervisors are represented through the Conference of State Bank Supervisors.

3 Financial institutions should apply the principles of this Statement in accordance with their internal definitions of small business loans or as appropriate in their loan portfolios. Small business lending includes loans to small businesses and farms, such as working capital lines of credit, secured and unsecured term loans, as well as unsecured revolving credit.

4 Responses to the Federal Reserve Board’s Senior Loan Officer Opinion Survey indicate that the net fraction of banks that tightened credit standards and terms on C&I loans to small firms was very high in 2009, and exceeded its previous highs in the past twenty years.

5 The data is for commercial banks, where small business loans, as reported in the Call Report FFIEC 031 and 041, schedule RC-C, part II are defined as loans with original amounts of $1 million or less that are secured by nonfarm nonresidential properties or commercial and industrial loans plus loans with original balances of $500,000 or less for agricultural production or secured by farmland.

Underwriting and Risk Management Considerations

An institution should understand the long-term viability of the borrower’s business, and focus on the strength of a borrower’s business plan, including its plan for the use and repayment of borrowed funds. The institution should have an understanding of the competition and local market conditions affecting the borrower’s business and should not base lending decisions solely on national market trends when local conditions may be more favorable.

Further, while the regulators expect institutions to effectively monitor and manage credit concentrations, institutions should not automatically refuse credit to sound borrowers because of a borrower’s particular industry or geographic location. To the maximum extent possible, loan decisions should be made based on the creditworthiness of the individual borrower, consistent with prudent management of credit concentrations.

For most small business loans, the primary source of repayment is often the cash flow of the business, either through the conversion of current assets or ongoing business operations. An institution’s cash flow analysis should cover current and expected cash flows, and reflect expectations for the borrower’s performance over a reasonable range of future conditions, rather than overly optimistic or pessimistic cases. Many small business borrowers also rely on their personal wealth and resources to support loan requests.

A borrower’s credit history and financial strength, including credit score, are components of assessing willingness and ability to repay, and should be considered in conjunction with other judgmental factors, such as the strength of management. The loan structure should be appropriate for meeting the funding needs of the borrower given the type of credit and expected timing of the business’ cash flow.

Further, an institution should analyze the secondary sources of repayment, such as the strength of any guarantor or collateral support, and the ability of the borrower to provide additional capital. Institutions should not place excessive reliance on cyclical factors, such as appreciating or depreciating collateral values.

An institution should have robust risk management practices to identify, measure, monitor, and control credit risk in its lending activities. Further, institutions should promote a credit culture in which lenders develop and maintain prudent lending relationships and knowledge of borrowers. This culture should encourage lending staff to use sound judgment during the underwriting process. While institutions may use models to identify and manage concentration risk, portfolio management models that rely primarily on general inputs, such as geographic location and industry, should not be used as a substitute for the evaluation of an individual customer’s repayment capacity.

Examination Reviews

Examiners will not discourage prudent small business lending by financial institutions, nor will they criticize institutions for working in a prudent and constructive manner with small business borrowers. Examiners will expect institutions to employ sound underwriting and risk management practices, maintain adequate loan loss reserves and capital, and take appropriate charge-offs when warranted.

As with all lending, examiners are expected to take a balanced approach in assessing the adequacy of an institution’s risk management practices in its small business lending activities. As a general principle, examiners will not adversely classify loans solely due to a decline in the collateral value below the loan balance, provided the borrower has the willingness and ability to repay the loan according to reasonable terms. In addition, examiners will not classify loans due solely to the borrower’s association with a particular industry or geographic location that is experiencing financial difficulties.”

(We can only hope)

The Bank CEO Network has been helping Community Bank CEOs improve their banks’ performance for 17 years. The information and ideas gained from industry experts and other CEOs can be especially useful in difficult times. If you are a community bank CEO, we invite you to contact us to see whether The Bank CEO Network might be a good option for you.

Bankers speak candidly about the Services of The Bank Advisory Group

“We have used The Bank Advisory Group for over ten years to analyze bank purchases, review overall bank performance and do ESOP valuations. Our board and senior management have always respected their professionalism, financial review and candid remarks. As a result, we believe we are getting a thorough analysis, whether it be for a merger or a financial review of our bank.”

Robert A. Hulsey, President and CEO

American National Bank of Texas, Terrell, Texas

($1.5 billion total assets)

Well, at least I thought I had learned that lesson.  Yesterday, I met a very beautiful lady with years of experience and loads of very important friends. Sitting in the room with her I felt like the grandmother that I am.  That is I felt like that until…

Until I asked myself how I could help this beautiful, successful, lovely lady.   You see, servant leadership only counts when you actually apply it.

On the surface it would seem that she needed nothing from me.  She had it all. But I managed to quit comparing myself to her and her enormous success.  I actually managed to think of her and not ME, though admittedly it took a while.  I began to listen with the purpose of finding out how I could help her.

In the end I learned that she has a tremendous responsibility to put on a conference and she needs some breakout sessions of real interest to the attendees.  I introduced her to the work of the I-Opt Survey of Information Processing Styles and explained that I would be glad to teach a session on it to her attendees.

I don’t know if she will actually decide to use me in that role but in the process I had introduced her to a valuable tool she can use in her own business.  I had helped her.

That is how simple Servant Leadership is.  Seek more to serve than to be served.  It isn’t all about me.  And it isn’t about you either.  It is about how we can help each other.

Mercy Ships has indicated that they are receiving donations to fund a medical mission to Haiti.

As they have years and years of experience and well equipped ships to meet medical needs in third world areas, I recommend them to you as a trustworthy place to give to help Haiti.

To contact them regarding their plans for a medical mission email them at www.info@mercyships.org

To donate you can go to http://www.mercyships.org/HaitiRelief

In a recent email Don Stephens, the founder of Mercy Ships said:

“Sam Smith, CEO of Mercy Ships, emailed me regarding the most powerful earthquake to strike Haiti in more than 200 years: “The impact of this tragedy is ten times that of any hurricane. Please lift up the people of Haiti in prayer.”

Our Disaster Relief teams are working to provide relief to those in greatest need. Your financial support can help us bring hope and healing to the people of Haiti where it is so desperately needed.”

Please prayerfully consider a donation at this time:

http://www.mercyships.org/HaitiRelief

As we receive more information about the conditions in Haiti, we will provide more detailed reports about Mercy Ships’ response.

On behalf of the people of Haiti, we thank you for your prayers and financial support.

– Don Stephens

Founder/ President
Mercy Ships

We are not economists, not accountants and not futurists.  We are more accurately compared to a barometer.  We know when the pressure is rising.  In 2009 there was a confluence of decreased capital along with decreased demand.

Usually, when there is a tightening of credit or capital there will be an increased demand for our funding to meet working capital needs.  In general, this was not true in 2009 because simultaneous with the freeze in the capital markets, there was a sudden drop in demand.

Our seasoned and stable clients were able to weather the storm because they were not heavily laden with long term debt.  They used our services to meet payroll and fill existing orders.  Then, the “great wait and see” began.

There was a collective “breath-holding” among the major large companies who use the goods and services of our clients.

Well, we now think there has been a collective sigh.  It is not a strong wind but a noticeable sigh.  It seems like our clients are experiencing an up tick in demand for their goods and services.

I know this is not scientific evidence of a turn in the economy.  It is simply the result of over 20 years of watching from the ground level how our economy actually works.  So, be encouraged.

This video was shared globally to Keith Ferrazzi’s list and blog:

My article recently published in Houston Performance Magazine (use promo code inhouston):

Eric Standlee

Fortunately, with American Prudential Capital, we are able to help companies fund their stability and growth without such collateral.

We factor a company’s business-to-business accounts receivables (invoices) and provide them with 80% of the funds within 24 hours of approval. When the invoices are paid, we forward the remaining payment to the company minus an agreed upon fee.

No need to wait on clients to pay in 50.8 days (average) or worse!

No long term debt to repay!

No loss of ownership (equity) in your company or your soul!

Plus (+), we are much more fun to work with than someone who thinks that they can hold your soul hostage! Ahhh, you can really rest in peace.

]]> http://www.americanprudential.com/blog/2009/06/25/whats-your-business-worth/feed/ 0 http://www.americanprudential.com/blog/2009/06/02/changing-with-the-times-financing-the-changes/?utm_source=rss&utm_medium=rss&utm_campaign=changing-with-the-times-financing-the-changes http://www.americanprudential.com/blog/2009/06/02/changing-with-the-times-financing-the-changes/#comments Tue, 02 Jun 2009 20:43:27 +0000 Eric Standlee http://www.americanprudential.com/?p=1017 Warren Buffet is quoted as saying, “Be Fearful When Others Are Greedy. Be Greedy When Others Are Fearful.” Dave Ramsey said during his Town Hall event on April 22, 2009, “We don’t have to participate in the recession.”

Instead, this can be a really great time to start a business, which is antithetical to what people presume. The down market can provide lower costs of real estate in terms of leasing space and lower labor costs because people are willing to work for less or for deferred payments with the option of equity.

Larger groups of people are open to taking that chance of being an entrepreneur, because being laid off is that kick in the pants they needed to take their idea to the next level. It is our belief that these people will be the ones to help lead the country out of this recession.

However, funding a new business can be a challenge. Asking for loans from your family can be a dangerous undertaking. After all, you want to be able to go home at Thanksgiving, no matter what happens!

Things to consider include whether you have enough operating capital so that if you have clients that don’t pay their invoices for 30, 60, or 90 days, you can still operate your business.

Or you can work with American Prudential Capital who can fund your accounts receivables immediately and collect your invoices while you focus on growing your business and creating success.