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Small Businesses, Big Banks: Good Fit?

An unseasonably warm winter has affected the bottom line of weather-dependent retailers.

Banks say they assess each business' ability to repay lines of credit based on many factors, not just one bad season.

Tetra Image | Getty Images

When business is good, it's all good. It's when the going gets tough that you find out who is really in your corner.

Take Bill Silverman, owner of a ski shop in Livingston, N.J. His business had been through unseasonably warm winters before.

January and February of 2005 had been some of the wettest months on record, but also the warmest, and his business, which usually grosses about $2.5 million annually, fell off sharply. That time, he said, his bank discussed pulling his line of credit, but it was eventually renewed.

But this spring, after another nearly snowless winter in the Northeast, Bank of America, which has been his lender for years, sent a letter requesting that Silverman pay off his current line of credit by June 15.

Silverman, who has run High Country Ski and Sportsfor 26 years, is trying to come to terms with BofA, but he’s not waiting to hear if they reinstate it. In recent weeks he’s met with other, smaller banks. “I’m surprised how receptive the locals are,” he says, “They’re looking to beat out the big banks.”

Bank of America has recently trumpeted the fact that it added nearly 1,000 bankers to its small business ranks over the past year. In the first three months of 2012, according to a bank spokesperson, BofA has extended more than $3.6 billion in credit to small businesses, an increase of 14 percent over the same period last year.

But Silverman’s experience raises a question that many small businesspeople are asking in times of tighter credit and uneven profits: Are bigger banks willing to deal with the risk of a smaller business in tough times?

“It’s really a case of institutional fit,” said Charles Withee, executive vice president of The Provident Bank, a mid-sized regional bank based in Amesbury, Mass., with assets of $500 million. “Everybody has their spot.” He says if a business’s financials are basically strong, but it has hit a rough patch, “that’s the time when we do our best work,” he said.

“When times are good, anybody can do business with a big bank,” says Lisa Roberts, senior vice president of commercial lending at Champlain National Bank, an independent, community-owned bank in the Adirondack region of New York state. “We’re the smallest player in the market. If people come to us, and looking for us to get through [a rough time], we work them to get through it.”

The Adirondack region had its share of rough times this past year, suffering the same warm winter that New Jersey did, after Hurricane Irene had shortened the fall tourist season. Champlain National offered some residents loans with interest rates as low as 1.99 percent interest, “just to help neighbors,” said Tim Kononan, vice president of commercial lending in the bank’s Lake Placid office.

Bad times can actually be an opportunity to snatch business from the big boys. “It cuts both ways,” says Withee. “We can’t be the lender to the business that needs $100 million. But if one of my lenders has been chasing the ski-boot guy forever, and suddenly gets the phone call [that their credit line has been denied], we swoop in.”

“In a bigger bank,” says Withee, “there are lines of authority that the borrower doesn’t understand. He needs help, but he’s not getting answers. It’s a process that, when things are going along well, no one notices.”

Ask Brian Delaney. He owns High Peaks Cyclery, in Lake Placid, N.Y. Thanks to the hurricane, he says, “no one came up for leaf season, and then January was dead, February was dead, and March was super-dead.”

To be proactive, he said, he was looking to refinance some property at a lower rate. “I called a few banks that didn’t even return my call. And the bank I normally work with” — a larger bank that he did not name — “offered me a rate of 6 percent. I shook his hand and said goodbye.”

Delaney said he is now working with NBT Bank, a small bank based in Norwich, N.Y., to refinance. “They said, ‘We have money to lend, we want to work with you.’ ”

In some cases, according to Robb Hilson, a Bank of America small business executive, the bigger bank can be the better fit. “We are part of the local communities we serve [but] we offer the capabilities of a global firm.” For instance, says Hilson, “a customer with $2 million in annual sales that buys overseas, had a question about using foreign currencies. We can advise on that.”

High Country Mountain Sports
Source: High Country Mountain Sports
High Country Mountain Sports

Like any bank though, in the end, said Hilson, “we’re cash flow lenders, so we want to make sure that our credit clients have the ability to repay their loans. It’s important to assess their operations. Giving money that they can’t repay isn’t good business.”

Bank of America would not comment directly on Silverman’s situation, but through a spokesperson did acknowledge it had been in touch with him. Their talks had focused on “how the bank may be able to offer a short-term extension on the credit and then revisit the credit at the end of that time period.”

In general, said the spokesperson, “Bank of America does evaluate each line of credit in our portfolio on an annual basis.” The bank looks to ensure that borrowers have the means to repay the loan, as well as a secondary source of repayment, such as collateral. “Though each company is different,” the bank spokesman said, “we evaluate every line individually.”

Small banks spend no less time mitigating risk, says Brian Hickey, executive vice president and middle market manager for M&T Bank, based in Buffalo, N.Y., with $79 billion in assets. “We need our customers to succeed. We need to look at the business plan, their cash flow, how much inventory they have, and their payroll. It’s a deliberative process.”

But with seasonal businesses, Hickey says, it’s important to look at what has happened each winter or summer over the past several years. “If you have five good years, should you overlook the sixth, when it almost went out of business? We need to find out if it was because of the weather, or was it because of a new competitor that entered the market, or a new competitive dynamic they haven’t responded to. That’s the judgment of the lending officer.”

If your financials are solid, rejection at one bank can prompt small business owners to right-size their banking relationship. “I’m still working with Bank of America, and maybe we’ll be able to work it out. But I’m also trying my best to do something with a smaller bank,” says Silverman.

Even though the downturn has made finding credit a lender’s market, “I need to know that someone is going to be rooting for me.”

Email us at SmallBiz@cnbc.com and follow us on Twitter @SmallBizCNBC.

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