Mel Aanerud,
Minnesota SBA:
612.370.2324
melvin.aanerud@sba.gov
www.sba.gov
Thomas Burke,
Wells Fargo & Co.:
612.667.2753
thomas.w.burke@wellsfargo.com
www.wellsfargo.com
Randy Fulton,
Vacation Sports:
651.653.7401
rfulton@vacationsports.com
www.vacationsports.com
Jerry Kwapick,
Bremer Bank:
651.762.2412
gwkwapick@bremer.com
www.bremer.com
Steve Mercil,
RAIN Source Capital:
651.632.2140
www.rainsourcecapital.com
Marnie Ochs-Raleigh,
Evolve Systems:
651.628.4000
marnie@evolve-systems.com
www.evolve-systems.com
Curt Ratajczak,
TMS Johnson Inc.:
www.tmsj.com
Mike Sage,
Cramer Dental Sales:
763.746.7077
mike.sage@cramerdental.com
www.cramerdental.com
John Thwing,
Wells Fargo & Co.:
612.316.2501
sbaguy@wellsfargo.com
www.wellsfargo.com
Rick Wall,
Highland Bank:
952.858.4753
rick.wall@highlandbanks.com
www.highlandbanks.com
Despite negative news,
some local owners say
they can get loans
by Andrew Tellijohn
CURT RATAJCZAK had heard about the financial services collapse so he knew getting funding to buy a building for his company, TMS Johnson Inc., was no sure thing. He also knew Ridgedale State Bank, with which he’d long done business, had just been bought by St. Paul-based Highland Bank, which added to his concern.
But his company, a supplier of heating and ventilation equipment for commercial and industrial construction, had a solid 2008 through the doom-and-gloom of the market collapse, and his solid balance sheet and strong sales history made getting financing almost no different than it had been in the past, he says.
That’s not to say the New Hope-based company hasn’t felt the downturn. Toward the end of 2008 business has slowed. But the company was leasing half its building already and it had a solid past record to back its credit-worthiness.
“We had been working on this for about six months, since the middle of last year, when the market sort of took a nosedive,” says Ratajczak, president. “That was our first question to the bank, how does this affect us, and essentially it didn’t.
“The comment that was made by Highland was that ‘if people like you aren’t qualified, then I shouldn’t be in business,’ so there were no hurdles at all.”
Still lending
Rick Wall, CEO of St. Paul-based Highland Bank, says that while many national banks were affected by the financial collapse, most smaller commercial banks already had more stringent underwriting procedures in place that protected them.
Highland ranks among a number of local banks that say they’ve got capital available and they’re still looking for good deals.
“We largely didn’t go in for a lot of the exotic things that are problematic out there, so our underwriting doesn’t change a whole lot,” he says.
The segments have changed a bit – residential real estate isn’t seeing a lot of activity, for example. But many businesses are growing, “and they are taking advantage of the opportunities that are out there.”
Demand has also been strong at St. Paul-based Bremer Bank, where the company has invested resources to beef up several of its divisions, ranging from its Small Business Administration lending group to its non-profit division.
Bremer has a reputation for being a conservative lender but the company does loans in both strong and weak economies, says Jerry Kwapick, senior vice president and community business banking manager. In fact, he adds, the company exceeded its plans for loans in 2008 and demand from both existing and new clients remains strong.
So, while Bremer did respond to the economic downturn the company did not have to make any dramatic, radical changes.
“Clients who met our underwriting guidelines previously would meet our underwriting guidelines today,” he says.
Kwapick notes that consumer-related industries have been hit pretty hard by the downturn. Even those clients aren’t being turned away, however. He says the company’s relationship-oriented strategy aims to help entrepreneurs work with the Bremer banking team not only to find financing but also to receive assistance in dealing with tough times. It’s these downturns, Kwapick says, when strong banker-client relationships are possibly most important.
More rigid, regulated
Randy Fulton, president of White Bear Lake-based Vacation Sports Inc., recently learned just how true that is. He went to Bremer to discuss his desire to buy Midwest Events, an online registration company that processes payments.
Vacation Sports offers triathlons, duathlons and other running events throughout the Twin Cities, and for years, Fulton had paid a fee to Midwest Events to process payments for the events he was running.
Fulton admits he’s a less than perfect candidate for a loan. His FICO score has suffered during his efforts to build Vacation Sports and with the downturn he figured he was in for some scrutiny.
“I’m not an easily bankable person,” he says.
He did get his loan and throughout December instead of paying a fee to Midwest Events for processing his payments, he made money as other companies used his new firm to process theirs.
But the process took two or three weeks to complete where in the past, he says, he might have been able to go in, discuss the idea, and receive his financing “if not the same day, it could have been overnight.”
He was surprised at how rigid and regulated the process was compared with past financing efforts and he credited his relationship with Kwapick for finally making the transaction happen. “Jerry jumped through hoops,” Fulton says. “I still say your banker is one of the most important people you need to know. If I walked in cold a banker wouldn’t have looked at me.”
Stable industries sought
One local business owner surprised by the ease with which he received his funding is Mike Sage, president of Cramer Dental Sales, in Plymouth. He was up-to-speed on the difficulties facing the financial services industry and he knew he wasn’t chasing a company of his own during the best of lending climates.
But Sage has been in the distribution business for 25 years and he’s always longed to own his own business. So he got in touch with Calhoun Cos., a Minnesota business broker, to start scouting opportunities. Together they discovered Cramer, a long-time, family-owned business that distributes dental equipment.
He did his due diligence and met the family, with whom he found he shared many values: the desire to take good care of customers and provide a family- and people-oriented work environment.
He then hooked up with John Thwing, vice president of SBA lending with Wells Fargo Minnesota. Together, Sage says, they walked step-by-step through the process of putting together financial statements, discussing different ways of making such a purchase, and applying for an SBA loan.
“He was really good at being able to help me with the pros and cons of each,” Sage says.
Sage says he realizes Thwing did a lot of behind-the-scenes work on his loan application as well, but overall he recalls a surprisingly simple process. The biggest hurdle he came across had nothing to do with finding financing, but with negotiating a sale price in the middle of the stock market collapse.
“I received approval pretty quickly,” Sage says. “The process of obtaining an initial approval was quite simple, actually.”
It’s been a good move for him so far. He’s owned Cramer Dental Sales, which he described as doing slightly less than $2 million in sales annually, since about Thanksgiving and the company showed double-digit sales growth in December.
One thing that helped, Sage and Thwing say, is that he happened to be getting into business in an industry that will be less affected by fluctuation in the economy.
“One of the areas that made me interested in the industry is that everybody’s got teeth,” he says. “Whether it’s cleaning, whether it’s doing work on them anywhere, these are products and services that we’ll be able to provide here. It’s a pretty stable industry.”
‘Absolute bang’
Wells Fargo’s Thwing acknowledged that SBA lending is down at Wells Fargo and across the state. But he says last year, despite falloff in the fourth quarter, was his second best year by volume of the last seven.
And, he adds, January “has started with an absolute bang. Since the New Year I’ve probably been the busiest I’ve been in 18 months.”
Most of that activity has come from businesses making money, though some has come from companies showing negative trends, “but I guess that’s to be expected,” he says. “My new saying for 2009 is that flat is the new up.”
Thwing isn’t averse to working with companies showing negative trends. He wants to see that they are taking quantifiable steps to manage their problems. Significant negative issues, he says, “are a concern and are going to need to be understood.”
Start-ups, especially those with revenue projections based largely around consumer spending, are down.
But otherwise, people want to buy real estate and acquire or grow businesses – the mix is still the norm. Manufacturers, suppliers, and service companies that aren’t based around discretionary spending are faring well, as are a lot of emerging medical businesses and professional practices. The percentage of good versus unapprovable transactions hasn’t changed dramatically either, he says.
“I’m not seeing a lot of people come to me that are clearly not financeable but still looking,” he says.
Systemwide, Wells Fargo has hired more sales people to try to earn potential business from any competitors having issues. The company is also marketing more to referral sources lawyers, accountants, and real estate professionals to inform them that the company is a willing lender and to remind potential customers that in some cases, such as the potential devaluation of commercial real estate, downturns can provide opportunities, says Thomas Burke, senior vice president of SBA Lending at Wells Fargo.
“Part of the issue right now is there is a psychological drag,” he says.
Interestingly enough, while SBA lending among larger institutions locally remains down, Minnesota is faring better than the rest of the nation, in part, because smaller banks are stepping up and providing more loans.
Mel Aanerud, deputy district director of SBA Minnesota, says SBA lending is down about 30 percent in Minnesota, far less than nationally, where it’s down closer to 60 percent.
Aanerud says some borrowers had become reliant on non-bank lenders whose strategy was to immediately sell loans on the secondary market because they don’t have any other base of money. The secondary market has dried up.
Also, some of the larger SBA lenders have gotten tied up in the national financial industry that has fallen apart. So, many of the larger SBA lenders have initiated far fewer loans than they typically would. On the other hand, Aanerud pointed at banks such as Red River of the North, which during the last fiscal year did one SBA loan, has already done four during the first quarter of fiscal 2009. Farmers & Merchants Bank, Springfield, Aanerud says, has done six this year after doing just two all of last year.
“We have some very unusual banks popping up as heavy users,” he says. “That’s very good for a bank like that
It’s kind of interesting in that smaller banks have picked up the pace in Minnesota.”
Not working for all
While banks are lending, some observers say qualifying for loans or lines of credit hasn’t worked out for everyone. “It really is a lot harder,” says Marnie Ochs-Raleigh, CEO with Roseville-based Evolve Systems.
Because of the housing market crumble credit lines aren’t as high as they normally would be and banks are looking more stringently at statistics such as debt-to-equity ratio. If businesses don’t stand up they don’t get the cash, Ochs-Raleigh says.
Ochs-Raleigh says she’s learned through her networking groups and her clients that many businesses are going through a funding program that is similar to factoring that allows companies to leverage against future sales to get quick-turnaround loans. It’s expensive money but companies have been willing to do it, she says.
Another source of financing, she says, is angel investors. Steve Mercil, president and CEO at St. Paul-based RAIN Source Capital, says in the past he’s typically gotten a business offer about every other day. Lately those offers have been coming two to three times a day.
This is allowing angel investors to diversify their holdings but is also allowing them to be stringent in looking for good deals, something he’s noticing not only locally, but through the Angel Capital Association, a national alliance of angels, which he chairs.
There are challenges that come along with the heady times for angels. With the stock market in flux it’s hard to determine what a company will be worth in four to five years.
“We have to be conservative on valuations,” Mercil says. “It’s a double-edged sword. It’s a good thing in having more choices. It’s not a good market if you’re trying to exit a company. We’re like everybody. We’d like to see a more stable environment.”
