This morning’s informative breakfast meeting was about banking. Not traditional banking, but the kind of banking that can and does help the small business person.

 

Time was, according to Community Development Corporation’s Trevor Davis, when your banker could make an assessment of the lender that would take into consideration unusual and non-recurring events. For example a bankruptcy that was caused by a tragic health problem, would put a small business lender out of consideration in the traditional banking community. However a loan officer in CDC could make a lending decision based on more complete knowledge of the borrower.

 

Prior to the time that bankers went to a numerical rating system, the traditional bankers would do that too, now those otherwise credit worthy applicants are referred to banks like CDC.

 

Mr. Davis said that there are four kinds of small businesses entrepreneurs and all are important

1) Survival – I’m in business because I lost my job at GE and I have to survive

2)Lifestyle – I’m doing what I love and great wealth is of secondary importance

3)Serial – Create businesses and later sell them or close them depending on viability.

4) Growth-Here the purpose is to create personal wealth, and community wealth, with an eye toward creating a large company, perhaps even going public. 

 

Not all of the above, perhaps none of the above, would qualify for traditional lending

 

Traditional bankers have a loan loss expectancy of 1%. The CDC has a default rate of about 4%. I asked if that rate of loss was sustainable, and the answer was, yes, for various reasons including, that there is no obligation for his bank to show a profit. Other reasons are that there are grants and donations from government and traditional banks to help CDC perform a valuable service.. The good news is that 96% of the loans are paid back, and that has a social value to the region because many of these small businesses exist because of lay-offs caused by a constantly changing economy.

 

Mr Davis brought up an interesting development that is now being supported by Walmart and Home Depot. Walmart has been offering training for businesses. With the idea that both the local retailer and the big box store can co-exist. Indeed I have seen it happen several times. If you need a supplier that can also answer many of your question, chances are you’ll be heading to your local hardware store, not Home Depot. Perhaps the pressure exerted against these retailing giants has borne some significant fruit. These small, in town stores, are the natural clientele of the CDC, and it is important good news that there appears to be a stabilization. That stabilization is aided by the resources made available by banks like the CDC.