Banking Relationships: They’re just as important as the money

“The right relationship is everything” was the promotional theme for JP Morgan Chase’s Community Development Group in the early 1990s, and it couldn't have put it better. According to both micro and corporate financial lenders, it's not the money, but building a relationship that is essential in keeping up with today’s rapidly changing business world. “Smart money” includes having the support and expertise you need for your business.

Over the past few years, major financial institutions have offered a number of ingenious initiatives to lend capital to minority- and women-owned small businesses. Depending on whom you talk to, there is plenty of money to be lent if you want to start a business. Bank of America reports the number of U.S. Small Business Administration loans it has made to minority businesses grew nearly 40 percent since 2002. Wachovia also claims an increase in minority lending, and has developed partnerships with Black Enterprise’s Entrepreneurs Conference and the U.S. Hispanic Chamber of Commerce to reach this market. However, finding a breakdown of these allocations by ethnicity and gender is difficult. But one thing stands out: Today's banks are aggressively changing the way they
do business to reach minorities entrepreneurs.

The Role of Microlenders
Although their future may be in question due to dwindling government and community reinvestment funds, microlenders have been changing the lives of entrepreneurs and revitalizing communities since the beginning of trade. They have become extremely popular with start-up and community-based small businesses, approving loans of from $1,500 up to $25,000. Forsaking the strict guidelines used by traditional banks, microlenders have long practiced building “relationships” with their clients, and corporate bankers are giving them every opportunity to succeed to the
next level.  

The “Undesirable” Stigma
With so much money available to lend and numerous technical assistance programs that literally take the borrower by the hand to learn the ABC's of running a successful business, why aren't more small entrepreneurs keeping up with the economy? Why are they still “undesirable” to lenders?

"A lot of people that come in haven't even established a business plan,” says Karen Frank, manager at Commerce Bank NA's branch at 109th Street and Broadway in New York City. "Whether they are a small proprietor or L.L.C. or incorporated, if they are a start-up business and they are looking for financing, they really fit the criteria for S.B.A. lending. Ideally, we would be looking for three years’ credentials, a resume and a business plan.” According to Frank, another important element to securing the loan and succeeding in business is building a relationship with your lender. “If you are a start-up you may begin with an S.B.A. loan. But as your business begins to grow, you'll want to borrow more money. Having a relationship will be one of the key issues,” she says. Commerce Bank is one of S.B.A.’s top designated lenders to Black-owned businesses in the agency's New York District.

Even at traditional banks, managers play a huge role in those relationships, notes Frank, who works with nonprofits like the Harlem Business Alliance to help small businesses grow. "You can visit branch to branch and the experience may be different. [For] some of them, you need to come prepared and this is the way it is. As a manager, and working in the community, I don't feel the same way. Anyone that walked in and needed help, I felt we had a moral responsibility to help them get where they needed to be.... It's all part of the process of growing relationships,” she says.

It's Not Always Money
Keith McHenry, president of the Harlem Business Alliance, says money is not always the best response to a small business's needs. “If your business is being mismanaged, if your concept is off—center, if your ability to execute a plan-if you have one—s suspect, then all the money in the world is not going to save a business,” he says. For the Alliance, it’s often more important to help a business lay out a plan if it doesn't have one, help it become more efficient and effective to carry out a plan if it does have one, or expose it to the various tools and techniques for doing business in the 21st century, McHenry says. “The business world has changed since a lot of these folks have come into business. A lot of our small businesses have been around for 20 or 30 years and never had a business plan. There may be some people who had a very good idea but never really had the level of skills to pull this off....They survived because they were the only game in town. Now, there are others playing the game and competition is killing them. The market will decide who survives and who doesn't. At the end of the day, if there is no longer a viable market for your business, then we need to look at gearing you toward something else.”

Eileen Spinner, co-owner of Soup Man restaurant in Harlem, has had many business enterprises over the years. She agrees with McHenry that old business habits are hard to break. "The concept of doing business shouldn't fail. The management has to be savvy on how to do management. A lot of the new businesses are not savvy about managing their business, so they go out of business. They want the business, but they don’t know how to manage it,” she says. Getting the money isn't the problem, she adds. "I have the credit, but start-up restaurants are very risky. Unfortunately, many African-Americans who have worked for so many people for years have never been in charge and don't know how to run a business. I hired a restaurant consultant, paid him big bucks, but my partner would not listen to him. That’s an expensive lesson. Fear blocks their judgment to grow,” Spinner says.

The 'Gift' Mind-set
Changing the mind-set of the small entrepreneur is also a real concern for lenders. A considerable number of minority business owners have been conditioned to expect some type of gift [or grant] to grow their business. According to several nonprofit lenders, part of the culture of small businesses, particularly among American Black start-ups, is to seek monies they don't have to pay back.

Accion, an international nonprofit lender, boasts a 91 percent payback rate among its clients. But a closer look will tell you that the lenders making that claim usually are looking for the equivalent of a client's firstborn as collateral and tend to offer high interest rates. However, among certain cultural groups, among them Latinos who traditionally are accustomed to borrowing from family and private donors, paying back loans at high interest rates is not an obstacle in starting a business. Not paying back the loan could result in triple debt. Free money is difficult to find these days and usually comes in amounts of less than $5,000. In today’s market, that is a drop in the bucket in running a business.

Stevie Wonder once sang, "Every- thing must change...nothing stays the same.” Today’s entrepreneurs must adhere to the solid business advice offered by their financial lender as well as establish a solid working relationship with him or her to meet their great expectations. It’s like love and marriage. You have to work at it to make it succeed.