If you’re a small business looking for a loan, your approval may be tied to the type of financial institution you approach
Soon after opening in downtown Halifax, North Brewing Company was taxed with an enviable problem: they needed to grow—fast. Company president Peter Burbidge knew that his fledgling business had to expand if he wanted to keep filling the demanding tankards of thirsty Haligonians. He also knew that if he grew too quickly he risked overextending the company. But if he didn’t take advantage of the opportunity, someone else would.
Not surprisingly, he opted to grow—but he didn’t do it alone. He partnered with the owners of Ace Burger to create Battery Park, a new restaurant and beer bar on the once gritty, now hip Ochterloney Street in downtown Dartmouth.
“We started out with the brewery super small, with just $120,000 and from day one we were overwhelmed with demand. We added tanks and increased volume the best we could, but it’s a very capital intensive business,” says Burbidge. “We decided to take the next step to get a bigger brew house, a second store, and beer bar.”
It sounds like a natural progression, but it wasn’t without its hurdles—especially when it came to borrowing the money Burbidge needed to make it work.
We put a lot of weight on the character of the individual…We look at their reputation in the community. How entrepreneurial they are.
Like many small business owners, most of his was capital tied up in production and sales, and with only a few years under his belt, he needed financing to expand. Burbidge’s first stop was to his bank. To his dismay, the bank wasn’t as interested in his plans as much as his numbers. His old, outdated numbers.
“Originally, we were with (one of the big banks), but when it came time to expand, and we were looking for financing, they were only interested in our previous year-end statements,” says Burbidge. “They were able to give us some money, but not what we needed. They just looked at the numbers and pretty much wanted us to wait a year.”
According to Jenelle Sobey, managing partner of Halifax- based digital design and app developer Code + Mortar, big banks and small business expansion are not a natural fit. “Banks are not forward thinking. They don’t do forecasting,” she says. “You’re looking for financing for growth, numbers that don’t exist yet. You can only borrow on what you’ve built so far. They take zero risks. If you get a manager on your side who believes in your vision, it is an exception.”
That’s what North Brewing was searching for: a lender with vision. They found it in their local credit union.
“When I had the meeting, I was impressed that the superiors were right down the hall, where the decision would be made. They were much more receptive and excited about our plan,” Burbidge says.
The credit union Burbidge is referring to is CUA. Like all credit unions, CUA is a local, community-focused full service financial institution owned by the same people and companies it does business with.
“A lot of businesses don’t realize that we offer this service (small business financing),” says Scott Durling, vice president of member services at CUA. “We look at their business plan, financial statements, potential cash flow and projections about what the company is planning to do. We don’t approve everybody, but we do give them a plan on how to get to a ‘yes.’”
“Our interest rates are extremely competitive as well,” says Durling. “It’s very rare we lose a deal to an interest rate. And the vast majority of decisions stop with me.”
In other words, they were exactly the kind of lender Burbidge was looking for. “They knew our location was up and coming and that there was nothing like it in Dartmouth, that it was going to be successful,” says Burbidge. “(Our bank) would never consider that. The fact the credit union was willing to come up with significant funding meant that we didn’t have to delay and lose the location. Plus, our bank representative was always changing or moving to Toronto.”
Renzo Ranalli, vice president, business bank credit products group at TD Bank in Toronto, says one of the reasons why bankers are often on the move is because, as an employer, they want their staff to advance and grow. “We want people who are curious and want to expand their career and encourage them to seek out opportunities to grow. We maintain the story of customers through our customer relationship software. When someone takes over a portfolio, subject to the customer not opting-out for privacy reasons, they can access all previous documentation.”
Select a (network lender) who’s within your industry and understands your business. People are apprehensive about loaning money to businesses when they don’t know how the business works.
“A person’s personal credit history goes a long way and is the most important at the start-up level for micro lending,” says Ranalli. “Provided the application is in order, having a business plan and the capacity to pay on the personal side is evident, we have an answer (to a loan request) in one or two minutes.”
While CUA has a similar approach when it comes to considering a client’s past financial performance and ability to guarantee debt repayment, Durling says the decision-making process doesn’t stop there. “We put a lot of weight on the character of the individual, which has been lost in the (banking) industry. We look at their reputation in the community. How entrepreneurial they are. If someone can demonstrate that they are really trying to help the community and has a good reputation, a decision that could easily be a ‘no’ can turn to a ‘yes’ because of their character.”
Sobey offers a third alternative to borrowing. If you are a small business looking for something more flexible and negotiable than a credit union or bank, you can consider borrowing from other high net-worth entrepreneurs, or what she terms “network lenders.”
“You don’t get to negotiate with your bank, but you can with your network,” says Sobey, “Select someone who’s within your industry and understands your business. People are apprehensive about loaning money to businesses when they don’t know how the business works.”
That’s something North Brewing might find useful as a secondary source of capital as they prepare for their next expansion.
“We have already increased our capacity to a point where we need to add more capacity already,” says Burbidge. “We’ve started selling our product in liquor stores, and the new beer bar has been very well received by the community.”
But Burbidge says he already knows who he’ll turn to as his investment partner for his next expansion—and he’s encouraging others to do the same. For this entrepreneur, credit unions are his perfect brew.