Bank officials say they lend to entrepreneurs in the hope that some will grow to be million-dollar borrowers.
By CYNTHIA VINARSKY
VINDICATOR BUSINESS WRITER
WARREN -- When it comes to small business lending, Second National Bank of Warren is second to none.
For four consecutive years, the United States Small Business Administration has recognized Second National as the No. 1 SBA lender among community banks in the Cleveland district.
Even in competition with banks many times its size, Second National has consistently been among the top SBA lenders, surpassing Sky Bank and KeyBank in 2001.
And the pattern continues this year.
With 14 SBA loans approved in the first quarter, the Warren bank is the one regional on the list of five top lenders in the district. Only Bank One, National City and First Merit, all much larger institutions, surpassed its record for that period.
Second National has practical reasons for focusing so much effort on small business loans, said John Falatok, senior vice president and chief lending officer.
"It's a good feeding system," he said. "We establish relationships with businesses early in their life cycle. Hopefully, if everything is done properly along the way, those businesses will remain loyal customers as they grow."
Entrepreneurs who get their start-up loans from the bank are more likely to sign on for other bank services. "These are the businesses that can eventually develop into million-dollar borrowers," he said.
Another benefit, Falatok said, is the profit the bank makes by selling its SBA loans on the secondary market. The sale is transparent to the borrower because Second National continues to service the loans and there is no change in the terms or payments.
SBA loans carry a federal guarantee of 50 percent or more, he explained, so investors in the secondary market pay a premium to buy the guaranteed portion of the loans.
Second National has the best interests of the community in mind, as well, when it helps qualified entrepreneurs launch their new business dreams. "I think small business loans are one of the best things a bank can do to help develop a community," Falatok said.
Despite its stellar SBA loan record, Second National officials recently identified some weaknesses in the bank's services for small businesses and made some changes.
New this year is a Small Business Banking Group, a division focused solely on cultivating financial relationships with small businesses.
Group representatives are based at Second National's offices in Warren, Boardman, Akron and Beachwood and have authority to approve business loans between $75,000 and $400,000. A business owner could arrange for a smaller loan at any of the bank's branches, and larger loans would go through its commercial lending division.
The bank also developed an informational brochure to provide details on all of its products geared for small business, and it added a small business page on its Web site.
Lending to small businesses is tricky and can be risky.
"It's an art," Falatok said. "Lending is predicting the future, and we don't always succeed. Sometimes we wish we hadn't said no, and sometimes we wish we hadn't said yes."
Jens Mayer, vice president and manager of the small business group in Warren, said loan personnel examine three factors when deciding whether to approve a new small business loan:
UDoes the entrepreneur have experience in their chosen business field?
UHave they established a business plan to show what money will be used, how it will be used, and how they will pay it back?
UHow have they handled their personal finances?
Some banks feed an applicant's financial data into a computer and base their loan approvals solely on a mathematical calculation, Mayer said. Second National loan executives prefer getting to know their prospective borrowers personally, and they sometimes learn there are extenuating circumstances to offset apparent problems on an application.
"Sometimes, when you get to know people on a one-on-one basis, you can make it happen," he said.
Presley Gillespie, vice president and community development officer for Second National, said the bank also works to provide business education seminars for would-be entrepreneurs and for small business owners.
Second National works closely with community agencies such as the Service Corps of Retired Executives in Youngstown, Mahoning Valley Economic Development Corp. in Liberty and the Small Business Development Center at Youngstown State University. All offer free business counseling and other help for entrepreneurs.
The bank also provides financial support for programs designed to reach out to minority and women entrepreneurs, such as the twice-annual entrepreneurship course offered at the Rebecca Williams Community Center in Warren.
"The biggest reason for business failure is lack of planning," Gillespie said. "We have a community development strategy, and it's about making sure that we don't just get our small businesses started and leave them hanging. We want to keep them going."