Panel: Communicate with banks during downturn

In these uncertain economic times, one owner of a small business turns to cash, liquefying as many assets as possible. A second entrepreneur maxes out on credit cards to meet the payroll of his small business. Yet a third is in ostrich mode, frozen in inaction and not paying any bills.
No names were mentioned, but these are three actual and current situations cited briefly by key players at an Oct. 7 session of the Small Business Advocacy Council (SBAC) in Rhode Island, held at the Valley Street headquarters of the state Economic Development Corporation.
Lt. Gov. Elizabeth H. Roberts hosted a panel discussion that elicited advice on how a small business can weather the current crisis, but no firm conclusions were reached on what role, if any, state government should play in assisting local entrepreneurs.
On the panel were James M. Vesey, executive vice president and chief credit officer of the Washington Trust Co. based in Westerly; Mark S. Hayward, director of the Rhode Island District Office of the U.S. Small Business Administration (SBA); and Mark S. Murphy, editor of Providence Business News.
“The advice I give is to take a deep breath, try and relax as best you can,” Vesey said. In his 38 years in the banking business, Vesey said he has never seen anything quite like the current crisis. “We’re in uncharted waters,” he said.
To small-business owners who are struggling, he suggested staying “in close touch with your financial advisers, your accountants, your attorney” and, most especially, with your bank. “When you do have problems, raise the issue with your bank. Most banks will be willing to work with you,” Vesey said.
“If you’re a business looking for a loan,” Roberts asked him, “how have things changed?” Washington Trust, in business for 208 years, has a “disciplined credit culture,” Vesey replied, so it did not get caught in the subprime morass. But the bank will not lend money unless the applicant has the proven ability to pay it back. Most banks are “probably not” willing to take a leap of faith on a credit customer today, he said. “Maintain some level of liquidity as a business person,” he added. “I think that’s critical right now.”
To illustrate how money is tightening, Hayward offered these figures on SBA approval of 7(A) loans for small businesses nationwide: in federal fiscal year 2004, 81,133 loans worth $13.5 billion were guaranteed; in 2005, it was 95,900 loans worth $15.2 billion; in 2006, 97,291 loans worth $14.5 billion; in 2007, 99,606 loans worth $14.2 billion; and, in 2008, 69,434 loans worth $12.67 billion. “So you can see the precipitous dip” in the number of loans, Hayward said. “There’s $3 billion that is not in the economy” now compared with 2005.
Hayward spoke of “a stream of people coming to us looking for capital,” many with “significantly lower” credit scores than their counterparts in the past. He said he refers petitioners to various banks, which actually make the loans while the SBA guarantees up to 90 percent of the sum loaned.
Vesey mentioned “a general slowdown” as fewer people apply for loans.
The top six lenders that the SBA works with in Rhode Island are, according to Hayward: Citizens Bank, Coastway Credit Union, Washington Trust Co., Bank Rhode Island, Sovereign Bank and Westerly Community Credit Union. Hayward said he believes banks should make use of the SBA loan guarantee more frequently.
Hayward agreed that the best advice for a small-business owner is to keep the lines of communication open with his or her bank and financial advisers. He was optimistic about the future.
“Almost 99 percent of all business in Rhode Island are small businesses,” he said. “They’re among the most resilient people I’ve ever met.”
J. Michael Saul, a deputy director of R.I. Economic Development Corporation in charge of EDC Capital, a one-stop financing center for business, called for “collaborative thinking” at the state level and “the bringing together” of the state’s bank leaders to consider remedies. “In Rhode Island, we have a capital issue that’s larger than the credit crunch,” Saul said. “We need to begin thinking about what do we do on an emergency basis to build up liquidity and, in the longer term, to provide capital.”
Although at least one advisory council member blamed the media for inducing panic, Murphy said the newspaper’s goal is not to sensationalize, but to “keep people informed” with the most concise information possible and “to get people to keep asking themselves the right questions.” It can be difficult, he admitted, to get business people to be honest about their financial predicaments and “admit they’re failing.”
“As time goes on, we’ll hear more and more details,” Murphy said. “I don’t think we’ve heard the whole truth just yet.”
Roberts indicated that her office will continue work on this issue. “We need a larger vision of prosperity for our state, beyond dealing with the state budget crisis,” she told a gathering near the end of the session that included 23 advisory-council members and small-business people. &#8226