Bangor Savings Bank loaned almost $15 million to 68 small Maine businesses, earning the title of top Small Business Administration lender in 2011. Across the state, Maine banks granted 393 SBA loans totaling $79 million during the fiscal year ending Sept. 30. The state has 147,484 small businesses — defined as having fewer than 500 employees — which employ almost 60% of Maine's private-sector workers.
In the past few years, Bangor Savings Bank has targeted the small-business market in Maine; since 2008 it has provided nearly $200 million in new small-business loans. The bank also has about $21 million in current SBA loan balances. It's the first time the bank has come out number one on the SBA list, according to John Edwards, executive vice president and chief banking officer of Bangor Savings Bank. In 2010, it loaned a little under $5.2 million in SBA-backed loans; in 2009, $4.2 million.
In 2010, Camden National Bank earned the top-lender title, loaning about $7.8 million, and in 2009 Merrill Merchants Bank took the title by lending a little under $9.5 million.
Mainebiz recently spoke to Edwards and Yellow Light Breen, Bangor Savings Bank executive vice president and chief strategic officer, about the bank's SBA lending. The following is an edited transcript of the conversation.
Mainebiz: Why is Bangor Savings Bank so far ahead in this area?
John Edwards: Simply stated, I think supporting Maine, its businesses and the communities we serve is part and parcel of our strategic mission. It's real clear if you're a community bank and you're based in Maine that you're … going to support Maine's businesses, because your future, your successes depend upon that. All of our profits don't go out of state; they're reinvested in this state. All of our loans are made in the state, all of the money that we take as profits that we reinvest in our communities stays in the state of Maine. For us, it's real simple: If you're going to be a Maine bank, you need to support the state; you need to support the business community.
Is this a new direction for you?
Edwards: I think over the past six or seven years, we have made a concerted effort to grow and support businesses. As a community mutual savings bank, our roots are clearly with the retail customer base, but things are changing. Our bank, our management team, our executive team recognizes the need for a full-service bank within the state, serving businesses, serving communities, serving the wealth management sector in a personal way.
Yellow Light Breen: What's amazing is that in each of the last three years, our small-loan production has actually increased. So as we read national stories about banks not lending, including not lending to small businesses, it doesn't add up to the picture at Bangor Savings Bank. But we've had to work harder than ever to stay out on the streets working with those clients. And because we have a large branch network and a very capable business banker staff in the state, we've been able to do that. I think, if anything, we've probably turned even more to partnerships like the SBA to help us continue to make those loans, as businesses have faced a lot of challenges and the SBA has been aggressive in trying to assist with that.
What percentage of your loans are your SBA loans?
Edwards: SBA is certainly a critical partner to us, and in terms of the number of [small business] loans, I want to say that's going to be upwards of 10% to 15%. We certainly … are active in many other programs, for example the Finance Authority of Mane, which has programs to support businesses, and the Rural Development Authority. So there are many, many options that are available, and our job as leaders within the bank is to make sure those tools are available to our technicians, who are relationship managers on the accounts, and that those are delivered in a way that is meeting clients' needs in the market.
Is that 10% to 15% an unusually high percentage for a bank?
Edwards: I don't think it's a high percentage. It's probably higher for all the banks, that their percentage of SBA loans may be higher now than it was five years ago, just because it's been such an important business development tool for us to support a lot of these companies.
What does it take to succeed in this area?
Edwards: We have a whole group within the bank that is dedicated to just dealing with companies with sales of $10 million or less, and that group is specifically charged with reaching out to them. We spend a lot of time internally working with our lending officers and our relationship managers, and we have a real focus on investigating what's important to the clients in the market. Probably today more than ever we're finding the small-business clients are uncertain about the future, thirsting for information that will help their business, and are really seeking advice. And those that are seeking advice aren't just taking advice from anybody; there is a trusted relationship that needs to be developed between the small business and its banker, which is not something that is an entitlement. It's something that one earns, and you know you have that when you see that the emotional and intellectual connection between the bank and the business is there.
When was that small-business group formed?
Edwards: Again, that started six years ago as a separate group. It's grown since then.
Why are SBA loans so important to Bangor Savings Bank?
Edwards: We are in a period right now of four years of challenges for the economy as a whole, and for the Maine economy in particular. As we deliver credit into the market, we're obviously a regulated industry. It's difficult to do that, and many times the requests we have for a loan do not necessarily fit exactly into the underwriting criteria that one might see at a bank. The SBA has been unbelievable in providing programs and access to capital through guarantees that have been very, very unique in the market, and has provided capital to help those companies grow or even sustain themselves when they otherwise wouldn't.
Do you find that SBA borrowers sometimes turn into traditional clients?
Edwards: I would say that that's the essence of the business and probably the primary satisfaction that most commercial bankers get out of the job. Most of us are bankers because we're risk-averse. Most business owners are risk takers. And to be able to support a business owner and watch their ideas come into a full-flown, thriving entity is probably one of the most satisfying things.
What is your average-sized SBA loan?
Breen: The loans that we did in house, the so-called 7(a) program, averaged about $165,000 per loan. The 504 program is about $700,000 per loan, so it's a much larger program.
Edwards: The SBA is not for just very small businesses. The SBA can deal with businesses of many different sizes. Certainly there are programs for microenterprises and very small loans, but we have clients who have sales of $10, $15 million who take advantage of some long-term equipment and real estate financing through an SBA program, known as the 504 program, that really allows them to leverage their money much further to grow, and in those cases I've seen loans of up to $2 million.
How does that compare with your average commercial loan?
Breen: We have almost 300 large commercial banking relationships, and the average lending relationship on the commercial side of Bangor Savings Banks is almost $2.7 million. … The average loan on our small business banking side is just over $200,000 — $215,000 last year — so it's within that same magnitude of average SBA loan sizes.
Edwards: The line of demarcation for us is $2 million in credit and $10 million in sales. It's hard to equate that to the number of employees … but for all intents and purposes that would be companies that probably employ 75 or less.
What are the 7(a) and the 504 programs?
Edwards: The SBA's most conventional program and the one that's been around the longest is called the 7(a) program. And the 7(a) program is an 80% guarantee, to the bank, of the principal amount of the loan. … It's important to note that during 2009, the SBA actually increased the guarantee from 80% to 90% on their 7(a) program, and that was a big deal for a lot of financial institutions because that allowed us to really go out [and support viable but struggling businesses]. The SBA 504 program, to look at it very simply, results in a 50% bank loan, a 40% [loan secured by] the Small Business Administration, and 10% equity. … That is just a tremendously underutilized program, in my opinion, and a great option for anybody thinking of equipment or real estate financing.
What kind of revenues have the SBA loans generated for the bank?
Edwards: We really do not segregate out the small business SBA-guaranteed loans as a segment in and of itself. They're not considered any type of different category within the bank, as it pertains to the way we look at our financial institution. We look at them as another product that we can deliver to a critical segment of the Maine economy. You're looking at 147,000 businesses in the state that are small business — that is Maine, that is us, and we group it together as a whole. I can tell you we have $200 million worth of small business loans at Bangor Savings Bank outstanding on our books right now.
What's your future strategy regarding SBA loans?
Edwards: The future strategy is to continue to recognize the Small Business Administration as a partner in helping us serve Maine, and the growth of this state. And we … want to be recognized as a full-serve alternative to a lot of the major banks throughout the state, in that we can offer the same breadth of products and capacities that you see within those banks, but can deliver that on a statewide basis through many channels. The Small Business Administration is critically important to us.