Welcome to another installment in our series of Referral Partner Profiles. This is the final profile of 2019, and I think it’s particularly pertinent to the current economic climate.
Hunt Dawkins is Vice President-SBA Division Manager at Axiom Bank. He eloquently describes his job as “financing the hopes of dreams of business owners.” But because most people’s experience with bank financing is limited to a home or car loan, I wanted to discover what exactly that entailed.
I sat down with Hunt to discuss his role as a commercial lender and to get a sense of the role he played in a business owner’s world. Hunt was extremely helpful, especially in clarifying a number of commercial lending topics that perpetually confuse business owners. Not only was his discussion of how loan decisions are made illuminating, but the explanation of what a loan packet ought to include will be useful for any business owner seeking a commercial loan.
The Who
I began our discussion by asking for a basic description of what Hunt’s job actually is and whom he helps. Hunt said that as a commercial lender he works with established businesses to help them obtain capital. Basically, he’s a financial partner for businesses with a steady historical cash flow, including manufacturers, professional service providers, and real estate developers.
Unfortunately, startups and early-stage businesses often aren’t good candidates for bank financing because they don’t have year-over-year cash flow metrics. (As I was prepping for my interview with Hunt, I found the analysis of online small business lenders by the folks at ConsumersAdvocate.org particularly helpful.)
Importantly, the form this funding takes and the use of the funding changes from business to business. One business may need financing to pay for expansions, while another might need to cover overhead and payroll.
The What
My bigger question, though, was what kind of projects Hunt financed. Most business owner’s experience with lending institutions is limited to consumer loans, which are, as Hunt explained, very different from commercial lending.
He can provide commercial loans for business expansion or new construction, but that’s only a part of what he offers. Hunt can also help finance a business’ working capital or the business’ physical location—the office, warehouse, plant, etc. So, for example, if your company builds DooDads, Hunt can give you a line of credit to finance your accounts receivable so you can continue to produce DooDads until you get paid.
Or perhaps you are a window manufacturer who owns a building with a showroom out front and a shop and warehouse in back. Hunt can provide a mortgage loan for the building and various financing mechanisms to keep the internal business operations functioning.
Matching Sources to the Uses
Hunt made clear that the biggest distinction between consumer loans and commercial financing is that consumer loans are basically one size fits all. When a business owner needs financing, though, the type of financing changes depending on end goal. You really must look to the final use of the funds to determine the type of funding needed.
He said a mistake many business owners make when approaching banks about financing is opening the conversation with what they want rather than with what they’re trying to achieve. So, Hunt often hears things like “I need a $500,000 line of credit to buy the lot across the street.” However, as I now know, lines of credit aren’t used for lot purchases. That business owner should have begun the conversation by saying that he wanted to purchase the lot across the street, and Hunt could have informed him that he needed a term loan.
Relationships Are Key
All of this underscores the importance of building and maintaining a relationship with your banker. The right banker is a resource for your business, and you shouldn’t see them as simply a transaction manager.
Hunt pushes hard to play this role for his clients. He emphasized to me how much more effective a commercial lender can be if the business owner has built a relationship with that banker. From what Hunt said, I took away three primary ways this sustained relationship benefits businesses.
The financials are what they are, but the story is the sizzle. It’s what helps me convince the committee to say yes. I am going to get them excited about you because of your story!
Advocacy
When you apply for commercial financing, the bank will make a decision on your loan application based on a wide range of factors. You obviously want this money, so actively shaping the conversation is in your best interest.
As your commercial relationship manager and loan officer, Hunt is your advocate to the loan committee. He is going to present your financing request and tell them your story. “The financials are what they are,” Hunt said, “but the story is the sizzle. It’s what helps me convince the committee to say yes. I am going to get them excited about you because of your story!”
Efficiency
From start to finish, obtaining commercial financing for a project can be a lengthy process. Business owners need to search for, vet, and meet with a lender, then put together and submit a loan application. Depending on what you need funding for, timing may be a significant factor.
Business owners who have maintained a relationship with their banker are in a better position and can reduce the time needed to process funding requests. One-off funding requests take more time because the business is starting from square one both in building rapport with the bank and in putting together its application documents.
This is the true difference between “relationship managers” and “transaction managers” according to Hunt. The relationship manager knows about your business’ needs and helps you maintain an up-to-date file, both of which ultimately benefit the business.
Education
Finally, the better relationship you have with your banker, the better resource he or she can be to educate you on key financial lingo, loan terms, and your business’ future capital needs. This is especially important for those that are unfamiliar with commercial lending.
As with any industry, there’s an unending supply of impenetrable jargon seemingly meant to confuse and vex outsiders. Hunt recounted numerous times during his consultations with business owners at the Florida SBDC where business owners would tell him that they’d been denied funding by a bank but didn’t really understand why. “Bankers sometimes speak a language that only bankers understand,” Hunt said, “and it’s awful.” It’s good to have someone as a resource whom you can ask to explain these topics to you.
While we were on the topic, I took the opportunity to let Hunt educate me about loan packages and loan applications. When I asked, Hunt was visibly excited. It was clear this was a topic he’d had conversations with many business owners about and that they’d benefitted immensely. I hoped I would as well.
Loan Package Contents
A business owner will need to provide to the banker the following documents for an average loan package:
- three years of tax returns,
- three years of internal financial statements,
- a current year-to-date financial statement,
- an accounts receivable aging report (if applicable),
- personal financial statement from owner(s),
- three years of owner(s) tax returns.
It is a fairly extensive list, Hunt acknowledged, but a business owner should already have most of the documents. Moreover, the banker isn’t asking for the information to be nosy; it’s needed for them to make a fulsome case to the loan committee on your behalf.
Closing Advice
Hunt’s closing advice to business owners isn’t new, but it is important. He reiterated the value of building a team of professional advisors—accountant, banker, insurance agent, attorney—and of maintaining relationships with that team even when you don’t need their services.
The best time to build a relationship with a banker or a commercial lender is when you don’t need to borrow money. Don’t wait until it’s a 911 situation. Start early. Let them build the credit package for you and understand your business, so that when you do need the money, they are ready to go.
Learn More
If you and your business would like to start building a relationship with a commercial lender, there are many ways you can learn more. You can visit Axiom Bank’s website at www.AxiomBanking.com or you can reach Hunt by phone at 321-249-7841 or email hdawkins@axiombanking.com.
We are also here to help you discuss capital raising transactions for your business. We would love to be a part of your transactional advisory team to help you build and grow your business. Call us at (407)649-7777 or email a team member directly to schedule a consultation.
