Tom Traficanti
Executive Vice President
Chief Credit Officer
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BA Economics University of
California Santa Barbara, MBA
University of Nevada Reno, ABA
Stonier Graduate Banking School,
Georgetown University
Commercial Banking Officer since
1987 in Reno and have been VP
with Heritage Bank since 2001
Employed by both large banks and
community banks since 1984
Heritage Bank is locally owned
community bank founded in 1996
Heritage has 6 full-service banking
branches in northern Nevada and
over $500 million in assets
Specializes in commercial banking
to small business
2012 Received SBA award for #1
SBA 504/7a loans originated
www.heritagebanknevada.com
Interest Rate History
(Prime Rate)
http://research.stlouisfed.org/fred2/
What’s normal?
Excess Bank Liquidity
QE1,2,3-4ever?
Multiplier Effect
Lending not increasing money supply
What is preventing
banks from making
more loans?
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Not enough loan demand
from qualified borrowers
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Tightened lending standards
after Great Recession
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Uncertainty about regulatory
changes affecting both
banking industry and small
business
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General uncertainty about
sustainability of recovery, low
interests rates and federal
debt
A banker will lend you an
umbrella as long as it’s not
raining…
Sources of Loans for Small Business
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Commercial Banks
Credit Unions
Bank/CU Loans with SBA Guarantee
Alternative Microloan Programs and State
Programs
Factoring Receivables and Private Lenders
Vendors / Suppliers or Customers
Friends / Family
Private Lending with Equity Participation or
Venture Capital
Types and Structures of Loans
Business Credit Offered By Banks
• Term loans for purchase/refinance of fixed assets (Both
conventional and SBA 7a)
• Term loans for purchase/refinance of real estate
(Owner Users and Investors)
• Special loan programs for purchase of “owner user”
commercial real estate (SBA 504)
• Revolving Lines of Credit
• Letters of Credit
• Construction loans
• Business Credit Cards, Debit Cards and Business
Overdraft Lines
Qualifying for Business Loan
Primary and secondary repayment sources
The traditional “5 Cs” of Lending:
• Character/Credit History – Bank evaluates experience and
history of principal owner, personal credit report (FICO Score)
and business credit report (D&B, Experian).
• Capacity – Cash flow projection is substantiated by least 2-3
years of performance. Bank calculates a debt/income or debt
service coverage ratio.
• Collateral – Banks assigns “liquidation values” and “advance
rates” for each type of asset.
• Capital – Bank calculates debt/equity ratio and looks for
“outside” net worth and liquidity of principal owner.
• Conditions - Bank evaluates how funds are used, other
conditions surrounding the request and conditions
(covenants) for granting loan.
Innovations
(Good and Bad for Small Business)
• Credit Scoring Models – Used by most banks for
smaller (under $100,000 or greater) and rely
significantly on credit scores.
• Credit Monitoring both business and personal – credit
bureaus now provide instant updates to lenders for
granting and reducing credit availability.
• Collateral Valuation Monitoring – Updated appraisals,
home values and other asset values are monitored
regularly and may adjust credit availability.
• Internet and Mobile Banking – Additional risks and
responsibilities are associated with ACH and other
electronic banking.
Lessons Learned
(Bankers may consider when applying for loan)
• Cash and cash flow is more important than income.
Regularly update cash flow projections.
• Be sure to have checks and balances for employees
with access to your money and credit.
• Monitor closely the concentration and collectability of
receivables.
• Have backup plan for disruption by primary vendors
and suppliers.
• Stay on top of changes in industry and economy and
proactive changes even if it hurts.
• Building business credit and a relationship with banker
is a step by step process that grows with your business.