After “foreclosure” it is the most feared word in a banker’s arsenal. When the pinstriped man behind the desk says “relationship,” clients grow pale. They envision hooks sinking in deep and holding them in a life time of debt. But those who have spent an afternoon with shirtsleeves rolled up, going over their business needs with Unity Bank’s Jim Hughes, find out that they need be more attentive than wary.
As CEO, Hughes oversees Unity’s 15 New Jersey offices, the two in Pennsylvania, and the six out of state lending offices, entailing approximately $610 million in deposits. He sees Unity as filling the traditional community bank niche, and readily admits that he is much longer on building relationships, than harvesting mere transactions. This said, Hughes’ doors remain open to all commercial levels. For the past several years, the Small Business Administration has listed Unity as one of the nation’s top investors in government-guaranteed loans.
* Give a little. All business is personal; each company is individual. While it may appear that bank rates and protocols are fixed in marble, Hughes insists that an enterprise seeking funding can go a long way towards making its rate competitive. The simplest way, of course, is to put your money where your loan application is. Placing payroll, escrow, and trust accounts in the lender’s bank not only puts gold stars on the loan application as sheer collateral. It establishes a personal mutual trust.
Naturally, the sheer dollar amount invested in the lender bank’s products makes an applicant attractive. “Yet the individual percentage of the company’s and owner’s assets he invests with us may prove just as impressive,” says Hughes. * Sweeps Mythology. Everybody is doing it. Everybody thinks it’s great. And that should be your first caveat. Once a banking tool reserved for preferred and high-investment customers, sweeps accounts are now being established by business clients down to entrepreneurial startups.
In effect, almost every bank has a preset checking account minimum. Money over that minimum is seen as languishing idly. The sweeps account sweeps this excess from one’s checking account into an investment (typically overnight,) where it can earn a little interest. If the checking account begins to dip below the minimum, the bank sweeps the needed funds out of the investment, back into checking.
Sounds fabulous. But Hughes offers a few cautionary questions before taking the plunge. First, there are the fees, ranging from $20 to $150 per transaction. Will the investment’s interest supercede them? Secondarily, each bank offers a limited number of investments from which you might choose. Do you like their offerings? Finally, it tends to be the small, aggressive banks with few branches that are advertising sweeps for the small investor (under $100,000.) So, is this ideal sweeps bank, also ideal for meeting all one’s other financial needs? “It’s really a case of just doing one’s arithmetic beforehand,” says Hughes. “Often people are finding that sweeps are bringing no greater return that a carefully managed checking account, with the surplus in a standard, readily liquid fund.
* Your Credit Worthiness. Traipse to the bank for a loan and their initial focus goes to the old cash flow. Today, however, this often means investigating not merely company’s funds, but the fiscal health of board members and senior management. “The mistake a lot of people make here, is seeing everything as history,” says Hughes. “A firm can have had a borderline, or even negative cash flow for the last two years, but the company may now have some advantageous changes that will sway us.” This may be in the form of a new product, new management or R & D team.
“Sooner or later, everything goes back to management,” says Hughes. One of the best tell tales for Unity is how the company presents itself for asset based loans. Based on either inventory or accounts receivable, these short term loans indicate the fiscal handling ability of the leadership. Are they working hard to get rid of unsalable stock? Are they managing to preserve a reasonable equity to ride through bad times? Often in such cases even concentrated attempts on these items can incur a lender’s favor. When an owner proves he can talk financially with his banker as informed equals, the banker is much more likely to sit down and take the time to structure the minimal, most effective loan portfolio.
The one aspect of credit worthiness that no company can control is the overall interest climate. If the yield-curve is steep, and banks are paying off depositors at a high rate, they are certainly less inclined to offer loans which may be fixed at a rate below deposit. Tough luck; no loan today. This becomes the juncture where the aggressive company scours the market, and compiles his own loans package as needed.
* Entrepreneurial Outreach. In 2007, Unity was rated among the top 30 banks nationally in providing seed funding and government agency backed notes. This may contradict the image of the typical mid-size firm, community bank, but for Hughes it all works. While admittedly these SBA and other government loans tend to be more one-time transactions, rather than relationship building, Unity is seeking to increase its SBA-backed loan business.
Traditionally, Unity has resold these loans to other investors, collecting a substantial income in resale fees. But this year Unity will be holding many of its SBA-guaranteed loans and administering them itself. Better income is predicted from this secured loan income, than the fluctuating resale market.
Many of these entrepreneurs, if they fall within the Unity footprint, will come back and develop that all important relationship. In the meantime, the mid-size firms, Unity’s prime customers, will continue to come in, roll up their sleeves, and hopefully get the solutions that keep them growing. B4
Jim Hughes’ career spans over a quarter century of banking leadership. He also serves as a board member of the New Jersey Bankers Association, (www.njbankers.com.) A native of Scotch Plains, he attended Mount Saint Mary’s College in Newburgh, New York, earning a bachelor’s in accounting. In l983, he graduated from Seton Hall with a master’s degree in finance, followed by a CPA. Upon graduation, he took an accounting position with then Peat Marwick, Mitchel & Co. in Manhattan. In l989, Hughes joined the Summit Bank and in 2000 transferred over to Unity, where he serves as president and CEO.
