I had the opportunity to interview Matthew Byrne and discuss his background in the banking industry, his current work as a business counselor with the SBTDC, and his advice for aspiring entrepreneurs.
You can learn more about the SBTDC here: www.sbtdc.org
Enjoy this interview with Matthew Byrne and learn how to navigate the world of business lending!
- Tell me about your background as a Business Counselor with the SBTDC and any prior experience you have in the area of lending?
My background is almost exclusively banking related. I began my professional career in 1988 with Wachovia Bank and spent just shy of nine (9) years with them primarily in Retail/Consumer Banking before transitioning to a Community Bank [The East Carolina Bank] in 1996 where I took on a role as a Loan Administrator. That assignment was largely a non-customer-contact role as well as covering both Retail and Commercial loan analysis for lenders outside of their credit authorities and post loan review on those loans within their respective authority.
I then had an opportunity to return to being an ‘active banker’ with a Client Portfolio for the Bank of Currituck in 2005. I spent some time there are a Commercial Lender, developing a De Novo Portfolio and rendering that Client base to nearly $12M. Within my time at the Bank there was a need for a strengthening (in fact the creation) of a Loan Administration function and I was provided an opportunity to take on that assignment. Long-story-short there were conflicts with the suggestions that I was offering and the strategy of the Senior Management of the Bank and a decision was made to part ways. Within one (1) year of my departure the FDIC introduced the Management of the Bank of Currituck to the Management of Towne Bank (formally) and a merger took place.
Ultimately I worked for a couple of other Banks until I was once again the odd-man-out during a round of mergers and that is when I sought refuge with the SBTDC!
- You currently work with the SBTDC as a Business Counselor. Tell me about Northeastern North Carolina’s lending climate over the past two years.
Due to the many mergers and consolidations resulting from the duress in the Market [Real Estate] and Economy – there has been a consolidation of significant contributors in the Banking Marketplace. Many of the institutions are working under direct ‘guidance’ from their regulators to reduce certain types of credit concentrations and all of them are being highly competitive for those credits that are Stallworth to their respective portfolios; Owner-Occupied Commercial Real Estate and Small Business Administration Guaranteed loans are highly sought after at this particular time.
All loan requests must be accompanied by fully supported/documented loan packages with all relevant and current financials available.
Rates are low / Credit is TIGHT!
- What characteristics does a lender look for in a startup?
- Feet-to-the-Fire Cash Equity Capital
- Experience in the Business and/or Industry or Strong Complimentary Factors
- Thoroughly Thought Through Planning and Development
- Solid Understanding of Financial, Emotional and Time/Energy Demands
- Strong Partnerships (Legal / Accounting / Experts in the Field)
- What are some common mistakes entrepreneurs make when applying for funding?
- Not being prepared…
- Not having an understanding of the function of how does one expect a Bank to provide support/funding if the borrower/owner hasn’t already made a significant investment [in] themselves. [Does not always have to be Cash Money!]
- Not asking for ENOUGH
- What should be included in a loan package?
- Three (3) Years Personal Tax Returns [For all Owners with greater than 10% interest]
- Personal Financial Statements [Owners, again]
Schedule of Debts [Current Balance w/Payment Obligation – Monthly/Quarterly/Int. Only]
Supporting Documentation for Extraordinary Assets [i.e. Quarterly Brokerage Statements]
- Three (3) Years Business Tax Returns
- ALL Related Interests [Operating Entities / Parent Companies / RE Holding Entities]
- Three (3) Years Financial Statements [P&L and Balance Sheets – Matching Entities from Above]
- Budget Projections [This is something we will work on together…]
- Copy of Business Documentation Filings with NC Secretary of State – ALL Relevant Entities
- Articles of Incorporation [Partnership Agreements]
- By-Laws (Borrowing Resolutions)
- Tax ID Numbers / Registrations
- Copy of Any Lease Agreements
- Resumes of all Borrowers/Owners/Guarantors – Optional… but quite a nice addition
- Business Plan
- Executive Summary
- Contracts/Client Status
- How important is the personal financial statement in a loan application?
VERY! What’s on the Statement is not always the major deciding factor. Sure a STRONG PFS will go a long way to helping a loan request advance, but even a moderate statement can get the job done is COMPLETED-with-CARE and with the proper respect it is due. Even a very wealthy individual can do a lazy job with their statement and that will have more negative impact in the eye of the Banker than you might imagine (at least it did for me…)
- Assuming the loan package is complete, what is the average wait time before being approved for the loan?
Depends on the type of loan and the complexity of the request – but the Banker should be able to set a solid expectation from the point where he has ‘a complete package’ and should be able to meet or exceed that expectation. Short of that there is too much pressure on the Lender and your deal is not going to get a fair review. Be bold enough to ask the Banker whether they perform their own underwriting or work with an ‘analyst partner’ – avoid asking if the request is within their authority, but hope that he/she offers that information within your loan discussions.
One full week – all things being in harmony – should be enough time to provide a solid indication of whether the request has merit or other options should be sought out.
- Why is it important for the entrepreneur to understand their financials and discuss them confidently with the lender?
That understanding & confidence will give evidence and credibility to the Business Operations with the entrepreneur running the show. If there is no solid understanding and exhibited comfort with the inner-workings of the financial functionality of the business – there is little reciprocal confidence from the Banker.
This is not to say – that a business owner cannot have a designated individual who does have this understanding – as long as that person and the owner find a way to BRIDGE that communication and understanding gap sufficiently to have operations run effectively. This person just becomes a ‘Key Man’ {woman} to the operations and that needs to be factored into the overall analysis.
- What are some of the key financial ratios a lender will calculate when reviewing financial projections?
- Debt Service Coverage = Net Income/Cash Flow available to pay ALL Monthly Obligations
- Debt-to-Worth = Total Liabilities divided by Net Worth/Retained Earnings [4:1]
- Liquidity
- Quick and Current
- COGS as a Percentage of SALES
- COGS as a Percentage of any/all Operating Lines of Credit
- Salaries and Wages as Percentage of SALES
- Rents as Percentage of SALES
- In reference to the capital (5C’s of credit), approximately what percentage will a lender expect the entrepreneur to invest in their business?
Minimally 20%
- If a business owner has a low credit score, will a lender automatically decline their application? Why or Why not?
Quite Likely… Most have certain automatic Thresholds/Guidelines – but they all have and are able to MITIGATE certain Credit Elements with Strong Off-Setting factors.
There are 1000 stories in the Naked City!!
- In your experience, when a startup is unsuccessful in obtaining a loan from a particular bank, what sources of funding do they resort to? (Crowdfunding, bootstrapping, etc.)
- Credit Cards!
- Home Equity Loans
- Family & Friends
- Private Capital Raise – Short-Term Promissory Notes – Higher Interest Rate(s)
Many try to make a go and are UNDER FUNDED and ultimately fail.
- If an entrepreneur wants to obtain funding from a bank, but their application was turned down, what steps would you recommend they take next? Can you provide an example of this?
- Ask the Bank/Banker what would have turned the decision around.
- Make appropriate adjustment is possible
- Try another Bank if answer seems institution specific / policy driven
- Seek Potential SBA Support
- Seek Alternative Funding
- Support Center
- Revolving Loan Fund
- Building Re Use
- What is one of the key obstacles entrepreneurs face when looking for funding?
Bank Policy against Lending to New Businesses [Less than two (2) years]
Current Tight Credit Environment
- What alternative funding sources would you recommend to startups?
- Support Center
- Revolving Loan Fund
- Building Re Use
- Many lenders are hesitant to lend to startups due to risk. How did startups that obtained funding through a bank overcome this obstacle?
- Cash Secured Lending
- Strong Backing from Co-Signer/Guarantor with Bank Relationship
- SBA Guarantees
What advice would you give to startups?
Be different, be resilient, be tenacious…but above all be prepared.
