Panel: Lack of Awareness, Trust, and Education are Barriers to Accessing Bank Financing for Small, Diverse-Owned Businesses
March 8, 2022“Access to capital… remains a considerable issue, especially with underserved businesses in this pandemic environment,” said Paul Jones, business support network director at Invest Detroit. “There are countless case studies, surveys – including one done by one of my supporting institutions, The New Economy Initiative, that surveyed over 600 businesses throughout Wayne County. And time after time, consistently, access to capital percolated to the top as a barrier to their growth and survivability.”
Jones said this during the Detroit Regional Chamber’s Black- and Diverse-Owned Business Series webinar, How to Access Bank Financing. This webinar aimed to teach small, diverse businesses in the Detroit region to access financing through small and large banks.
Moderated by Jones, the panel included:
- Eric Dietz, Regional President, Southeast Michigan, Huntington National Bank
- Mohamad Hammoud, Senior Vice President, Small Business Banking Manager, Bank of America
- Kenneth Kelly, Chairman and Chief Executive Officer, First Independence Bank
- Jason Tinsley, Michigan Market Manager, J.P. Morgan Private Bank
Creating a Personal Relationship with the Bank is Important
Dietz took the audience back to the beginning of the pandemic when many businesses were applying for Paycheck Protection Program (PPP) loans. He said this was when it became clear that many small businesses do not have the first thing they need to access bank financing: a banker.
“That really woke a lot of us up, as institutions and local business owners, to the fact that they didn’t have a banker. Many business owners go to banks, and they go to institutions, but they don’t have possibly a personal relationship with somebody that’s their advocate that can really go to bat for them within an institution,” Dietz said.
When businesses were looking to get the PPP loans, not having a dedicated banker familiar with their business model, goals, and more proved difficult. According to Dietz, businesses and banks were racing to secure the funds, and there was a big concern that the money was going to run out, so taking time away from applying to discuss the basics was not ideal.
This also influenced Huntington to implement a local small business program, Huntington Lift Local Business, as part of its $40 billion Community Plan to tackle social, racial, environmental, and economic inequities across its footprint. Huntington Life Local Business focuses on serving minority-, women-, and veteran-owned businesses, and according to Dietz, it is addressing the lack of trust between businesses and the bank.
“What we’re hoping on and banking on is that our clients build that relationship first and foremost with their branch manager,” Dietz said, “We think trust comes from there. Once you develop that relationship and once you get comfortable with somebody in the bank that’s ‘your person’ that can help you, we feel trust is built substantially from that point on.”
Education is Essential to Improve Financial Readiness Among Small Businesses
Hammoud shared his experience of closing his business because he did not think his company was ready to access capital due to a lack of financial education and readiness.
“That’s why I gravitate to small business,” Hammoud said. “I learned how much impact the banks can have on small businesses… even in minority communities, and so it became a passion of mine to get that information out. How fast can we get out to as many business owners as we can to help them understand what’s available to them?”
As part of his work to prepare small, diverse-owned businesses to access capital, Hammoud shared three aspects that small business owners should consider.
- Are you with the right bank for your business? Hammoud shared that every financial institution wants to help, but each has its “own appetite.” ] It’s important to consider your industry and business to find out what bank is best for you.
- Get to know the small business specialist within your bank that can help advise you on preparing your business and getting ready to access capital.
- Analyze your industry. How does your business compete in comparison? Are you on pace, ahead of pace, or behind pace with the industry average? This will help you understand if you are doing enough for your business to position it in the best way possible.
Lastly, Hammoud shared to put yourself in the bank’s shoes to understand what they are looking for when considering giving capital.
“If someone came to you and asked you to borrow money for their business, what questions would you ask? What would you like to see to feel comfortable to give your money to that business, knowing that they’ll be able to pay you back? That’s what it comes down to,” Hammoud said.
Dietz also shared that at Huntington, besides offering loans, they also provide an online self-guided portal to educate clients about running a business. The portal helps vet potential issues like an operational plan or talent management that will cause a business to lose money.
“It makes sense to combine education with a loan,” Dietz said.
Tinsley agreed, mentioning that J.P. Morgan Chase focuses on offering financial education and resources through community partners who are already out in the field and have access to clientele. They decided on this approach after realizing that many of the microbusinesses and small businesses that were coming into Chase branches and calling in were “fledgling startups” that needed resources.
“They definitely needed capital and access to capital, but they needed resources first,” Tinsley said. “So, we decided to take a step back and figure out how can we be collaborative, how can we be cohesive, and how can we really leverage the community to get the answers that were needed to help the businesses that were coming in for support.”
An example of J.P Morgan Private Bank in action was during the PPP loan distribution. It put business consultants in branches to help with the start to finish process of applying for a loan. It also launched webinars and virtual events to walk existing and potential business clients through the process.
“We wanted to make sure we were very deliberate and focused on who we felt got impacted the worst, which were diverse businesses, Black and Brown people, women, especially in Detroit,” Tinsley said.
By providing these educational resources to businesses throughout all 17 of the J.P. Morgan branches in Detroit, Tinsley shared that they accessed a lot of information about what was needed to help small businesses get loans.
“It gave us a blueprint and a plan, not just locally but nationally, to go ahead and stand up an entire division to focus on the educational process,” Tinsley said. “From that, we were able to get them what they needed to go apply for the loan.”
Once that was established, Tinsley shared that they took a strategic approach to focus on the low to moderate zip codes – many of which were in Detroit – to ensure that each branch was equipped to roll out the educational process and work with CDFIs to make sure they reach their target audience.
“It’s been a lot better as far as the educational aspect and the coaching and making sure that when people sit down with a business banker, that all their ducks are in a row, all their information is aligned, so they can apply for a loan the right way the first time,” Tinsley said.
Kelly also cited financial institutions working together – even as competitors – as important to overcoming the barrier of financial readiness that many small, diverse-owned businesses face.
“We need to have more dialogue and figure out how do we create shared learning… so we can really help our customers capitalize on all of these different opportunities,” Kelly said. “It’s overwhelming – to be candid with you – what’s available, but the reality is, we’re not getting enough there.”
He used the metaphor of putting out a house fire with a water hose. It is not easy to do. You need many individuals standing there with fire hoses to put the fire out.
Outdated Information Can Slow Down Access to Capital
The number of businesses that do not have their business information organized was also a revelation of the PPP loan application process
Hammoud shared there were two common scenarios during that time:
- Businesses that were connected with their accountants and attorneys and had a great relationship with their bankers thrived. Their operational documents were up to date, making the PPP application process easy.
- Outdated businesses that submitted information when they initially started but never updated their information when their organization changed had a difficult time applying for PPP funding. For example, businesses switching from a sole proprietorship to an LLC.
“We need to get in front of them, and they need to come to us,” Hammoud said. “It’s the responsibility of a business owner to make sure that where they bank, where they are, that everything is up to date.”
While Bank of America tries to reach as many business owners as possible to keep their database updated, Hammoud said it’s difficult with the amount of new small businesses opening today.
“The economy that we’re in today, small business is flourishing, and we’re seeing more small businesses open up than ever. And it’s starting to become an overwhelming amount of small businesses, which is a great thing, but at the same time, the ratio may have been 1 to 400 per banker; it could be up to 1 to 1,000 today,” Hammoud said.
Ultimately, the goal that banks like Bank of America, First Independence Bank, Huntington National Bank, and J.P. Morgan Private Bank have is to work together to build relationships throughout local communities like Detroit and provide resources and capital to help businesses flourish.
“It’s really about relationships, but more so collaboration,” Kelly said. “It’s going to take exactly what the Detroit [Regional] Chamber is doing right now: convening a group of individuals, who may be in their different corners, to talk about a topic and figure out how can they work on these things collectively. Even in the midst of competition, we could do that fairly and make a difference.”