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Supporting Small Businesses via Lending

There’s an array of options in the state for small businesses that seek capital.

Small businesses are the lifeblood of any healthy economy. In New Jersey specifically, small businesses make up 99.6 percent of the total businesses in the state. In total, small businesses employ approximately 1.8 million people in the state, or 50 percent of the private workforce. These businesses, defined as having fewer than 500 employees, need to be supported in order for the state to maintain a healthy economy. 

With National Small Business Week at the end of this month (April 29 – May 5), the economy in New Jersey continues to be strong, which is a great sign for current small business owners and entrepreneurs alike.

U.S. Small Business Administration (SBA) New Jersey District Director Al Titone says that National Small Business Week is a great time to get the word out as to what SBA is doing to support small businesses as well as to remind people of the importance of such businesses to the state.

The SBA approved a record $869 million in loans to New Jersey small business owners during the agency’s fiscal year 2017 (the period from Oct. 1, 2016 thru Sept. 30, 2017).

“When it comes to accessing capital, this has been an incredible year for New Jersey small business owners,” Titone says. “New Jersey ranked sixth in the country in the number of SBA loan approvals and 13th nationwide in dollar volume. An economy that continues to improve has translated into more loans and dollars for New Jersey entrepreneurs to start or expand their small businesses across the state.”

Sixty-seven percent of SBA loan approvals went to existing businesses, while 33 percent went to startup companies. This created 8,666 jobs, and retained 10,671 throughout the state.

“We all know that a better economy leads to more spending, and more spending leads to investment in equipment that spurs production, which contributes to healthy economic growth here in New Jersey,” Titone continues. “I am extremely pleased that 18 of the 21 counties in New Jersey saw increases in SBA loan approvals this year, which tells us that our lending programs are making an impact in almost every area of the state.”

Financing Options Abound

Aside from the health of the economy, the sheer number of avenues that a small business owner can navigate to seek capital makes financing that much more accessible, even to new businesses that may struggle to secure conventional lending.

While an established business with a credit history and track record will have a much easier time securing a loan than, say, a startup with no history, organizations such as the New Jersey Business Action Center (NJBAC) can direct business owners to an outlet that may be able to help them get on the right track to get approved for financing. The NJBAC also has a call center that will provide real-time mentoring service and answer any questions a business owner may have about financing on the spot.

The Regional Business Assistance Corporation (RBAC), headquartered in Mercerville and with a northern office in East Rutherford, is a private not-for-profit organization that helps businesses in underserved areas, and ones struggling to get conventional financing.

“We are dedicated to improving local economies and strengthening communities through business development and job creation in the state of New Jersey,” William Pazmino, executive director, RBAC says. “RBAC is designated as a Community Development Financial Institution (CDFI) and an SBA lender committed to providing small businesses access to capital in underserved populations and communities. RBAC steps in when businesses cannot get funding needed through conventional lending sources.”

Pazmino says that RBAC can offer loans to businesses regardless of derogatory, limited or no prior credit history. RBAC offers a wide range of financing options that other financial institutions may not offer to certain businesses, such as SBA Micro loans, Community Advantage loans and 504 loans.

It is important to note that the relationship between banks and an organization such as RBAC is often fluid, and at the end of the day, helping small businesses is a goal for each organization.

“We work with all banks, and, as such, we can step in to service the bank clients when they do not meet the institution’s lending criteria,” Pazmino says. “A financial institution’s partnership with RBAC demonstrates to a bank’s customers that the bank is committed to helping them grow, even when the borrowers don’t qualify for a bank’s loan services. Since RBAC is not a depository institution, the bank retains its account relationships, along with the potential for account/services growth as the company grows.”

“Furthermore, a partnership with RBAC can earn a bank Community Reinvestment Act (CRA) credit or consideration. A bank can earn credit by co-lending with RBAC (as in the SBA 504 program) or consideration simply by referring customers to RBAC for Community Advantage 7(a) loans,” he adds.

Banks Continue to do Their Part

According to Titone, the SBA worked with 109 lenders throughout fiscal year 2017. The leading lender was TD Bank with 738 loans for $53.4 million. JP-Morgan Chase Bank followed with 135 loans for $23.3 million and Wells Fargo Bank approved 127 loans for $22.3 million. Rounding out the top five lenders were M&T Bank with 90 loans for $15 million and Santander Bank with 56 loan approvals for $8.7 million.

Banks themselves are also becoming more proactive in seeking out potential small business borrowers. For example, Wayne-based Valley National Bank’s community business lending team aims to reach and help what Mike Warrington, first vice president and community lending team leader at Valley National Bank, describes as an underserved market in the banking space.

“We are the outside sales force for the internal lenders,” Warrington says. “We are sourcing opportunities, responding to inquiries and working with our retail partners to provide a better experience for these small business borrowers. When you are looking to borrow money, there’s always a lot of questions, especially if you haven’t done it before and particularly on the commercial side. We try to [answer those questions].”

Some of the top products that Valley’s community lending team can offer to businesses include access to lines of credit, financing of equipment purchases, and guidance towards options with better rates and no fees.

“We were put together specifically to sell and work with borrowers in this space,” Warrington adds. “We put credit trained people out in front of the borrowers so we can provide them with a better experience with direction and guidance, as opposed to just collecting information and waiting for someone to make a decision and communicate it. It is more personalized, more specialized, and we are seasoned, so it’s much more like giving advice.”

Impact of Online Banking

Online banking has done wonders for small businesses. From affording the businesses themselves the ability to conduct their transactions online, on mobile devices, and through apps – to being able to cash a check by taking a photo of it on their phone. Time is of utmost importance to small business owners, and the digital trends in banking have helped tremendously in freeing up time to tend to other areas of one’s business.

However, sitting down and talking to an experienced banker or financial expert in person is vital when it comes to a likely inexperienced small business owner trying to wrap their head around securing a loan.

“There’s still a people aspect to the business,” says Bob Young, senior vice president and business banking market manager for central New Jersey at PNC bank. “Technology helps to ease doing business, but the component of a conversation with a trained banker or an educated branch manager is still a very valuable part of the relationship between a bank and small business. The interaction can be extremely beneficial.”

Young says that it is important for business owners to keep lines of communications open with their banks, in order to seek guidance in the face of change.

“The challenge for a small business owner is to recognize where his or her expertise is, and if the business grows because of that expertise, he or she needs to figure out how to adapt to the growth. That is a lot of the conversation that we can have with a client,” he says.

Of course, technology is also being leveraged to aid in the lending sphere. Last year, SBA launched its online lender referral tool called Lender Match. Interested small business owners can enter some information about their company and can get matched with a lender who may be interested in talking to them.

“The idea is to always be thinking of streamlining and simplifying whenever possible when it comes to giving entrepreneurs access to capital,” Titone says.

Optimism Going Forward

The sense is positive moving forward into 2018 and beyond for small businesses that would like to secure financing.

From a banking perspective, Young says that the diversity of industries is New Jersey’s strength. He mentions retail, healthcare and technology as some of the sectors “in the limelight” currently, but he sees opportunities in nearly all industries. As a result of this diversity, New Jersey is well positioned to be protected against economic downswings.

“There is optimism amongst small companies in the state,” Pazmino says. “This is fueled by a very large number of owners who deem that now is a good time to expand. … The new federal tax law may have produced the most recent boost to small business optimism. Existing state and federal government related cost pressures continue to decrease, offering a more supportive business climate for small business companies. Additionally, consumer spending remains supportive, and business spending and housing remain strong.”

“Our work here is never done,” Titone adds. “In 2018, our goal is to see that all 21 counties in the state share in an increase in loan approvals. Our efforts will continue to be focused on increasing the number of loan approvals in underserved communities. We will continue to encourage and work with our lenders to make loans available to these communities and share our resources with small business owners to ensure they have every opportunity to secure capital through the SBA.”

 

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