Welcome to Your No.1 Community Bank's Blog
June 05, 2014
We sat down with Executive Vice President and Managing Director of Virginia National Bank, Scott Waskey to talk about loans for businesses, big and small.
1. Why might a small business consider a loan?
A business might consider a loan for several reasons. The business may have great cash flow to service a loan over a period of time, but lack the liquidity to make an investment or purchase in cash. Cash is usually used for short-term operating needs – in most cases, capital expenditures are more efficiently financed through debt.
2. What kinds of things might a loan help pay for?
Some examples include:
- The purchase of real estate;
- The expansion of operations;
- The purchase of equipment;
- The purchase of inventory; and/or
- Seasonal operating capital.
3. Why should a business look to a community bank, like Virginia National Bank, rather than a large bank for a loan?
One advantage of a community bank is that the decision-making is local, and made by folks who know and understand the businesses in their community. Also, in most large banks, a business owner will be handed off to a number of different bankers depending on the nature of the request – one person handles commercial real estate, another handles equipment loans, and another person entirely handles the personal banking needs of the owner. At VNB, a business owner works with one VNB banker who is able to get to know the owner and their business intimately, and use that knowledge to put together a comprehensive plan that will allow the business owner to accomplish their personal and professional goals.
Another advantage is speed – the VNB loan committee meets every Wednesday on a formal basis to review loan requests. Assuming that we have all the financial information we need for underwriting, it’s not unusual for us to turn around a loan decision in a week or less. For time-sensitive requests, we have a procedure where requests can be reviewed outside of a formal loan committee meeting.
Finally, flexibility – although we have general parameters and policies that create a framework for our loan terms, we are willing and able to craft a solution which best suits the customer’s needs. Our lending personnel have a great amount of experience and creativity – since we get together every Wednesday and actually discuss our loan requests, we are often able to suggest an alternative structure which will be better for the borrower.
4. What’s the loan process like?
VNB is a global cash flow lender, which means that we take into account all of a borrower’s sources of income and financial responsibilities. The advantage of this approach is that an investment that may not cash flow on its own can still be approved if the borrower has sufficient global cash flow or other resources to service the debt. By the same token, a loan request for an investment that may look great in a vacuum could potentially be denied if the other financial responsibilities of the borrower outweigh the positive cash flow of the new investment. This protects both the Bank AND the borrower.
Typically, for a new borrower, we will ask for a complete personal financial statement and three years of federal tax returns for both the business and all guarantors. Depending on the complexity of the business owner’s financial situation, this can be an extensive amount of material. We try to make this process as painless as possible for the borrower – we’re always willing to work through a CPA or other financial intermediary to collect the necessary information. It really is in the best interest of the borrower to be as open as possible about their financial situation, so that we can put the best deal possible together.
For security and privacy purposes, we offer the ability to submit financial information through the Secure File Exchange on our website. All financial information is of course kept strictly confidential – the only people that see it are the ones who are underwriting and deciding the loan request.
Once we have all the necessary financial information, the turnaround is very quick as noted above. Depending on the nature of the request, closing can take place within a day or two of approval. For real estate loans, we’re obviously at the mercy of appraisers, attorneys and title insurance companies – but I can promise you that VNB will not be the source of any delays! After an approval, we generally ask to have information updated on an annual basis.
5. What’s the size range of a typical loan and what are the terms?
There really is no “typical” loan – we’ve done $20,000 equipment loans all the way up to $10 million plus commercial real estate loans. Every loan and every borrower is unique, which is what makes our job so interesting. In general, real estate secured loans will have a longer amortization period than an equipment loan, based on the usable life of the collateral. Operating lines of credit will typically be annually renewable. The interest rate is driven by market rates and the risk profile of the borrower. Your VNB banker can generally provide a range of rates, but the final terms will be determined through the underwriting and approval process. One thing is for sure – we have been and will continue to be very aggressive in attempting to craft a solution that works for the borrower. Now is a great time for a business owner to invest in their business, while interest rates are still near historical lows.
LEAVE A COMMENT (0) Comments