Banker's Guide to New Small Business Finance
If you're a small business financing professional, Banker's Guide to New Small Business Finance gives you authoritative advice on everything you need to adapt and thrive in this rapidly growing business environment. CHARLES H. GREEN is a seasoned finance professional with over 30 years of experience advising, financing, and investing in the small business sector. His experience includes tenure as a commercial banker and venture capitalist. He also founded and served as President and CEO of Sunrise Bank of Atlanta. He regularly consults with business owners and bankers, writes about financial topics, and teaches finance through seminars and conferences produced by the enterprise he founded, the Small Business Finance Institute (www.SBFI.org).
Banker's Guide to New Small Business Finance
My introduction to the real world of banking, beyond lofty finance courses taken in college, was found on my first bank office desk in a stack of pages filled with columns of blank grids, matched with an adjacent column of accounting terms on the left side of the pages. These papers were spreadsheets, designed to be populated with numbers found in the hundreds of business financial statements collected by the bank from clients as obligated through their loan agreement covenants.
Behind these sheets were musty stacks of file folders of varying age, size, and degree of disorganization, which contained evidence used by the bank previously to decide whether to make each loan. Many of them actually had multiple financial statements inside while many were missing any such information.
My new purpose in life became to open and read every one of these financial statements and transcribe them by hand and pencil, writing every number from every financial account listed into the corresponding grid in every client file's respective spreadsheet. My hand began to ache just thinking about the task ahead. Should I have majored in economics?
These spreadsheets were organized to detail up to four years' balance sheets on the front side and four years' income statements on the back side, with succeeding years listed from left to right. At the bottom of the back side was space for calculating some financial ratios to measure working capital, liquidity, and leverage. Still more impressive was the fifth column on both sides of the page, which was reserved to include the latest year's industry average for each financial account, copiously transcribed from the fine print found in the Robert Morris Associates (now known as the Risk Management Association) Financial Statement Studies (cost = $29.95 in 1979 - low whistle).
My boss thought his small-town bank was finally hitting the big leagues, just like the money center banks - financial analysis . How sophisticated! But others grumbled that a college kid with no lending or business experience had been hired to second guess or opine about credit decisions already made. They were right, of course, as I discovered in my first loan review discussion with one of the bank's most senior lenders, its chairman, who patiently illuminated how much I had to learn.
And so began my exposure to"the numbers," which today remains the central element of client information required to determine the risk and desirability of a funding transaction. But other than using a digital workbook like Microsoft Excel or other spreadsheet software, little has changed from those early years of my career when even small banks started aggregating more information and exercising more thorough analysis to underwrite credit to businesses.
For many years, technology enabled the commercial banking industry to originate, aggregate, manage, move, and account for cash and non-cash item deposits with dizzying efficiency that dramatically lowered costs, increased productivity, improved security, and saved millions of trees. While in college during the 1970s, a part-time job in the school bursar's office exposed me to check cancellation machines that could imprint "for deposit only" on thousands of student payment checks in a matter of minutes and capture the front and back images of these checks to be reproduced later on microfiche for future reference.
But strangely, applying any technology to its core business - lending - has been painstakingly slow for bankers. Other than being able to order credit reports online and access a few financial analysis platforms that still require substantial manual entry, business lending has been the last frontier for banking technology improvement.
Even now, a small business owner approaching a typical bank for a loan will most likely be