Getting Business Loans through Credit Unions with Mark RitterOn March 6, 2020 by Raul Dinwiddie
Hello everybody and welcome to the show today I’m really glad you could join us. So today we’re going to be talking about something that’s really really really important which is some cool ways for you to be able get financing for your business which you know is one of my favorite topics to discuss. So with us today is Mark Ritter. Now Mark is actually the CEO with MBFS and an expert in credit unions and business lending. His primary role in MBFS is overseeing the strategy of helping credit unions assist members with business needs and consulting with a credit unions on planning the delivery of services to their membership. So in 2002 Mark started member’s First Federal Credit Union business lending program as one person and a desk with no policies, product, staff, systems or business members. That program grew to be one of the top 10 in the nation in the number of loans and balances outstanding for federal credit unions. In addition Mark developed the participation program that grew to one of the top buyers and sellers of credit union business loans in the eastern United States. He’s done extensive work at the branch retail staff business lending operational and sales staff and credit unions to educate and train them on the merits of business lending now for 10 years a member first he took on the challenge of being the CEO of a business lending CUSO not sure if I pronounce that right now I’ll ask him So Mark was the fifth CEO in five years with the organization which lost money every month of his existence and the past six years MBFS mark increased the number of credit unions that CUSO the CUSO services by over 500 percent which is crazy. I’m going to talk on how he did that and grew the revenues by 800 percent. Would you like that for your business were going to talk about it on how he did that to and ensure positive cash flow every full year. He’s been with them. More importantly, MBFS has helped countless credit union members gain the financing ready for business and investment needs. So Mark welcome to the show today. thank you. Thank you for having me. Looking forward to it. So is it CUSO is it CUSO help me because I’ve mispronounced it, the appropriate the terminology is CUSO so we usually use it on my business so which, is which is stands for Credit Union Service Organization. Okay. CUSO, got it. Well I kind of got maybe one of them slightly right but they messed up the rest so. Well listen you deal with a lot with business funding. So you know let me ask you that when we start there what have you found what’s kind of going on right now in the business lending space. it’s a great time. you know when we look at the stock market it is a great time to seek financing. There is a lot of money from my in my world to deals with regulated credit unions. The regulatory environment has never been better and more flexible for credit unions. And ultimately that passes through to businesses looking for financing. Competition is fierce among lending institutions these days which means people and businesses and real estate investors have the leverage to talk and negotiate much more than you could in the past with a great regulatory environment and a lot of people looking to put money on the street. that’s awesome. What do you find that people, because this is what I find, is that there is a ton of money out there. People don’t know how to get it or they’re looking in the wrong place. So what do you find is going on? What are some of the mistakes of small business owners are making because the crazy statistics are is that they’re struggling to get money it’s keeping them up at night they don’t know how to access it. So what are the mistakes that they’re making where they’re not able to tap into this capital that’s available? the first thing that we always, always see is people searching for a mismatch lender they’re shop in the mismatch lender. When you go to McDonald’s and you’re not, you’re not expecting a Ruth’s Chris Steak and it’s the same in the lending world. Everybody has their own niche. Everybody has their own world that they live in boxes that they live. Some like to take a little more risk. Some like certain cookie-cutter some like vehicles. You know my credit union. They love real estate investment loan. They cannot they the environment is great for residential real estate loans so that they’re a great fit for that. Some banks they don’t like it. There’s a lot or you can go to your hard money lender. So we really see finding that right fit. And that’s really leveraging your existing relationships and talking to a lender. You know most credit unions that I work with their community financial institutions they love to talk to people so you can have that open conversation without going through the formal application process to just say here’s who I am. Tell me what you need. The other mistake that we’ll see is people are getting to get too emotional about their loan. We realize. It’s your dream and your passion and your growth to the lender no matter where you are on the scale. They want their money back that they’re going to be lending you whether that’s Wall Street Corporate Financing or the highest price hard money lender. Everybody wants their money back. So understand the goals of who you’re dealing with and also understand where you are on the food. The food pyramid. I’ll call it for your business and your business scale to help you find that lender. But really you know finding that person who they fit who you can have a conversation with who does other types of loans similar to you where you can get the best interest rate at the lowest be possible. so let’s start there because that’s where I see exactly where people mess up as you’re, as you’re saying the same thing is that they don’t know where to go right. they’re going in to a lender that they clearly don’t qualify and then they don’t qualify knowing I can’t get a loan and they could’ve had qualified over here. So let’s break this down. Let’s say somebody starting a business you know is a bank. The best place to walk into if they’re starting a business or what kind of places should newer businesses that don’t have tax returns and those type of things be looking to be able to get capital and that’s it. we, we you know and of course we love to do all sorts of credit. and I’ll give you credit unions love to deal with existing relationships and they love to help out, members. Over 100 million Americans are members of a credit union today. Oh that’s one third of America so one third of the year the people that you talk with they have a probably have a membership at a credit union or they might have one down their street that they can talk to. And I don’t see protests on the street and everybody in an uproar about dealing with their local credit union. They’re generally a community institution that people like they’re Cooperative Financial Institution access the local decision-makers. And if you’re looking for that startup business we deal with a lot of seven (a) loans or SBA loans and they’re a great fit. I love 7(a) loans when people can get them. Personally, I think sometimes they get oversold because they’re the most profitable loans than a bank. So some banks tend to steer people to them that they don’t need but a credit union will help you get that off the ground whether it’s a small 10, 20 thousand dollar loan whether you’re moving up a little bit and need that SBA loan whether it’s a home equity loan sometimes where that’s where you have the most cap most equity you can go into one of my credit unions or any credit unions and have that story and conversation. OK. So let’s talk a little bit about this because you mentioned 7(a) now 7(a) obviously as you said a type of SBA loan. what of the most popular types of SBA loans? So everybody watching listening knows. Sure. There’s, there’s really two main types of SBA loans. Most of the time when people talk about an SBA loan they talk about what’s called the 7(a) loan. And that is the financial institution is going to make a loan to a business and to help mitigate that risk because it’s outside of their credit box. They will guarantee usually 75 percent of a loan. Sometimes it’s a little bit higher. But in general, it’s about three-quarters of the loan. The most common and best uses of this is if you’re acquiring a business and there’s a lot of goodwill and assets and customer lists that have a good value, you’re going to want that’s a good use of SBA loans. If you’re buying a good franchise that’s a great SBA loan. That’s the most common use or if you’re a service oriented business you know. And I think of the most common that dentists use a lot of SBA finding I think because maybe they’re buying a new practice. And really the only thing that they’re going to have is a chair and the silly stuff that they put in your mouth where there’s not a lot of hard assets. The other type of SBA loan that’s very commonly used is a 504 loan that’s not for real estate investments. That’s for an operating business and that is one of the most underused programs today because that allows you to buy a building and or other capital assets for your business with only 10 percent down as opposed to going to the bank or credit union and who’s going to have you doing twenty, twenty-five, thirty percent down. Those are the best deals in America and they get the SBA gives you 20 year fixed rate financing on those programs. OK so the main thing that people need to know about SBA is there’s a program for working capital for general purposes buying businesses even things like that. Then there’s one more for the real estate equipment. That kind of really specific needs primarily for real estate. So one of the things that I’ve heard from people that work along with is SBA loans. You know our finance team does a lot of these works with all these as well. Is that you know that it’s easier now to take a building you’re leasing or renting and you can almost come in and get one of these SBA 504. So your credit unions offer and then they’re able to come in and even maybe keep their payments about the same as the rent and lease and possibly even get in with little to no money down. Is there is that is that factual. Yes. The SBA does not have equity requirements. The SBA is looking to use business your business financials and your business strength. You can’t get turned down for an SBA loan because of lack of collateral. You did they’re really looking at the total picture. And many times in the credit unions space if you’re buying a building it’s not that uncommon for us to use seller knows different types of financing tools or if you’ve been in the property a while maybe there’s some increased value there where we can really move it to your move you’re getting into this property with very like a little cash down. You know our goal is to have successful businesses and not to drive you know use all. I would much rather have people using their cash for their business and building their business than putting it in a fixed asset where it becomes that dead money. Sure. Yeah. When you’re describing is an environment where they can go to when your credit unions walk in and possibly given little to no money down and buy what you’re leasing. So turning a liability really into an asset for the business which then gives you more equity to be able to be acquired and with other kinds of SBA loans. Speaking the 7 (a) well let’s talk about both of them. What’s qualification requirements like I mean is this where startups are going is to these kinds of loans or are they looking for two, three years in business, tax returns and more established well what kind of things are you really looking for to qualify 7 (a) for SBA. When I see I see franchises as brand new businesses I see that the new businesses really in franchises when you’re just buying it from scratch and going to have this franchise or you’re buying a new business kind of in that brand new startup category. The SBA credit box tend to be a little bit tighter but there’s also SBA microloans and there’s a great network of people who deal with SBA microloans where if you just need twenty, twenty-five thousand dollars to help get that business off the ground. I really see SBA loans when you’re in that motion to start get your business ramped up or if it’s an existing business and you’re looking at a rapid expansion when you’re looking at building those new locations. No that’s a really underutilized component of an SBA loan so that you know and also the more service-oriented you are you have to realize you know yes. Banks and credit unions they still like hard money when you’re in assets to fall back on if you can’t pay. But the more more service-oriented business you are the better fit it is for the SBA side. OK. What about microloans how these works are these because I kind of understand that these come from SBA which normally SBA is guaranteeing loans as you describe but our microloans coming directly from SBA and what’s like the limit or the ceiling of those type of loans.
that is really for it for your startup. I refer sometimes we get businesses in where I say you know you’re not quite at the maturity level for our loan but we send you to if you go to the SBA website they have pretty much the whole nation covered with these community lenders organizations that can give you these organizations have money that they’ve raised and to lend it to community, community based businesses. I’ve seen that and usually it’s up to amounts of about thirty-five thousand dollars. I’ve seen them lend to the guy who wants a gym to the hairdresser who wants to go out on her own really small you know dreams that there’s this money at a pretty reasonable rate and people who are looking to give to you. So you know here and here in Pennsylvania I worked with a lot of organizations one of the community first funds. And they love to give money to Pique. To businesses for people who have that dream of it but they just don’t quite fit the bank.
Makes sense. What about a qualification. I mean what’s it really takes to be able to qualify for this. The, the SBA microloan side they go very deep into the credit universe. they will look at you with you have something on your credit box. So yeah. That they are a much deeper kind of maybe that C and D rougher credits you can have a chance to build your business and dreams. Sorry, Mark, I had a cut. cut out on me there. OK so then who can qualify for SBA? I mean is it is it, is a good credit is is it a collateral based. Is it cash flow based? Is it all three is it. None of them give me a little bit more in-depth.
they do it for. For the credit based if you since it is a federal government program.
If there are if you’ve been arrested or or or have lost on any other government programs unfortunately that kicks you out. If you have some arrests and convictions in the past it’s not impossible but there’s just a little more paper paperwork. Collateral is never a reason to deny an SBA loan which is one of the best things that I think about them because a lot of times when you’re starting up a business or expanding your business you need money for things that aren’t isn’t fixed assets that you can use as collateral. It’s for the sign, it’s for your attorney, and it’s for to hire somebody. So those aren’t collateral but they’re great uses of the loan proceeds. So yeah you real collect you have credit. There’s there’s some flexibility in collateral is not a reason to not get a loan for it through the SBA. so as this process works out Mark somebody walks into your credit union. They look to me for their you know if a business owner walks into a credit union then what’s that process like when they work into it. Walk into one of your institutions to go from talking to somebody initially if whether they may qualify all the way to the funding process. Sure. From, from the SBA side what the first thing you know we’ve probably all heard horror stories of people going through the SBA loan process I’ll say formerly and in the not too distant past it was an absolute nightmare to me. The SBA has become the most friendly government agency there is as crazy as that sounds because they realize if it’s a horrible process to go through this loan people aren’t going to have their loans and if nobody is getting these loans this government agency doesn’t exist. So there’s a little little bit of customer there. They’re more customer service oriented. There’s the government the agency is funded just by the agency is funded just with the fees that borrowers pay. So what the first thing that we do when somebody comes to us for a business loan that might be an SBA prospect is that we work with that will do the initial eligibility and try to screen out all of the things that a is a qualify to qualify for an SBA loan. And one or those things that the SBA commonly looks at to screen out that would stop you from getting the loan. There’s nothing than working with a loan process for a month in finding out that you couldn’t you didn’t qualify after a month. A quick no is always better. Now under my credit union side we, we are MBFS is owned by credit unions with the purpose of driving business loans to credit union so many times when we work with a borrower. We have a team of lenders and we also people have people directly in the credit union. What we do is we’ll take it and we try to match it up with one of our credit union lenders who’s the best fit. To put you in that spot sometimes it’s an SBA loan. Sometimes it’s not. Many times we’re able to combo it. Maybe you need a real estate loan but you need working capital so we’ll combo that with an SBA loan as well. So we’re, we’re kind of an aggregator for the credit union industry. Most credit unions or just have one or two branches so it’s
really inefficient to go from smallest credit union to small credit union. A company like ours we work and have clients with over 50 credit unions and in different regions of the country. There’s a kind of a network of guys like me where we’re working with all the credit unions in our region who do commercial financing so it helps to go to the CUSO is like us instead of
hopping from one to one to one where we kind of have and can work with it all everybody together and we’re not. You know when you go to a broker if you know there’s always the brokers who if they come to me I’ll help you find financing. That’s not us. We’re putting up direct lenders and we’re owned by the credit union industry to find loans for these Credit Union. Sure and the difference there is the direct lenders it’s like your money, you’re working with the actual money said the decision. The buck stops there. and brokers are then going to lenders where then, then they’re getting their money so there’s that that in between. What about when, when it comes to pros and cons. I mean what do you like about SBA loans do you think are really good for business owners and like this is ridiculous and why you wouldn’t consider it. And then Iike what are some things that kind of hold people back like some people think that time of getting the loan and some of these things are barriers but I’m not really sure if that’s accurate or not. So what do think from your perspective on pros and cons? On the pro side. It to me the SBA is going to give you more financing at better terms for longer terms than you ever would ever get from a traditional lender. Those working you can finance that working capital needs and turn it out over seven years if you need to go if you need to. But you would never get a loan from even a credit union or a bank for that long of a working capital law. Well you get much, much more financing more flexible because they want to see your business succeed. From the negative side as I mentioned previously I think these loans are way oversold in the financial services space because of their profitability where sometimes you’ll have you’ll go into a bank and they’ll say Great. We’re going to give you an SBA loan where you have decent finance. If you’re a good financials and a good business and you don’t need an SBA loan it you know. So really give that second opinion on whether that’s the right product for you it’s the right product for the bank who’s trying to make a few extra bucks because they are more expensive, they are more expensive and that there isn’t. There is a longer lag time than traditional financing. If you’re trying to buy a vehicle I go to the dealership. I’m not going to wait six, eight weeks to get an SBA loan. I want to buy that car today. So if you’re planning and working ahead it’s a great fit but they’re not always the more time sensitive you are in the more established you that’s not for you. That’s not why the SBA exists. OK. This is really interesting because you know I’ve always kind of looked at SBA and a lot of people come to us because that kind of epitome where you want to end up. Like you said the longer-term lower rate, lower payments. So at what threshold do you see that SBA really just doesn’t work. Is it a growth is it? The business does so much in revenue or what kind of criteria does somebody like listening or watching go you know what that means. This isn’t for me. And then what is above it like what’s the next level to go to when they’ve basically outgrown an SBA loan. Sure, and I always say you tend to go from that startup where you’re the bank that friends and family phase to an SBA side to more traditional lending them the stronger your business is in the more mature it is. You shouldn’t be looking at the SBA side. When you going to get into the normal predictable income growth cash flow growth that, that you that should you should not be an SBA candidate unless you’re really kind of kind of do a large expansion. When your business is doubling and tripling every year and you’re in that rapid expansion and you need money quickly that’s a little bit higher risk and I think an SBA loan is good because they’re predicting they’re basing your loan off of what you’re going on in the future and not in the past. So that’s where I really see that. You know I always tell people if you can get the money without the SBA that’s the most desirable and that’s the use of the program. I don’t look at. I’ve seen loan companies with 10, 15 million dollars a year get an SBA loan. I’ve seen really small companies kind of self-employed people get the SBA loan. So I look at it more on the stability of your business how solid your financials are more than the type of business. Now there are some industries where the collateral is kind of funky or almost I hate to say it’s worthless but if you’re a printing company and you buy a printing press the size of a small house it takes up a whole room. If I repossess that I hate to say it but there’s not much I can do with it. So sometimes you might see an SBA loan just because people say I can’t I can’t do anything with this collateral. I want to finance the hockey rink with an SBA loan because if I wanted to repossess this hockey rink there’s not much I could do with it.
So. So it sounds like you’re saying look if you’re in rapid growth mode for example you know when you’re growing doubling tripling the SBA might, might work because it’s not consistent. But if you’re to a point where you’ve done the growth and now you’re kind of growing you know year after year. But it’s really stable and consistent. That’s maybe where you’ve outgrown SBA and you want to move into what you’re describing as a more conventional product. So what is a more conventional product look is like compared to SBA. Obviously, SBA is out. What’s the nice thing there is you don’t have a double qualification. You don’t have the fees. The points that everything is associated with SBA being in the mix. But outside of that how are rates how are terms compared on these more conventional type products that are not SBA versus SBA. Sure if you come to me today for a traditional I’ll call it owner-occupied small business loan you’re probably going to get a loan. I’ve seen 4.75 maybe five and a quarter somewhere in that range. We don’t have any prepayment penalties which the SBA has. We’re going to give you a nice fixed rate. We’re going to have probably. We’re very friendly in terms of fees. We keep those as mainly a pass-through cost and maybe a small fee and we can generally finance a lot of that into your package. So it’s a much quicker process. It’s a you’re negotiating with the lender directly. And we have a lot of flexibility in terms of how we do that. It’s not the residential mortgage market where we’re lending against the box. You can you can negotiate and talk with the lender about rates and terms and conditions and covenants that make sense for a mutually beneficial relationship. Now the SBA side they have a standard operating procedure which is about six inches thick that I have to conform to. We can both agree on it but the SBA is the one who does it whereas with that credit union you can sit down and talk with a decision-maker and negotiate a deal that makes sense for both of you and because they’re looking for that relationship and not necessarily just this loan but the spot but the follow-ups behind it and hopefully they can help you out with your checking accounts and mortgages and car loans and those relationships in the future which is ultimately what banks are looking for. You know I mean they really want that relationship the banking relationship and they just try. It sounds like the banks and credit unions are trying to make sure there’s as many products there as possible to keep that relationship to attack which brokers and a lot of them just aren’t as concerned with the relationship I think which, which is provide so much more value to what you guys do. Yes you’re exactly right. what about banks versus credit unions? I mean that’s the question right those of us that are out here in this world we don’t know like where do you see the difference between banks and credit unions when it comes to benefits or things they gain or the ability to get loans or whatever maybe. Well, I have never. I always have. I would say I’ve never been kicked out of a room because people hate their credit union and credit. And one of the I always say to once I went through. I’m sorry to interrupt but that is such a true statement right. I’m sorry. That was I just I really funny that you said that.
So if you think about what, what do you picture as a credit union of is a local institution that has low fees that’s accessible and friendly and is a co-operative financial institution for their members. That’s exactly what a credit union is. And it’s only been 20 years since credit unions have even had this ability by the law. So that’s why I always say if I went to work for a bank I’d probably be fired in a week because I’m pretty friendly we’re pretty relaxed and I just want to do what’s right for our business in front of us. Last year credit unions made over twenty-two billion dollars of commercial loans across the country. Twenty-two billion dollars, and that was for very small truck loans. But we were also just working on a twenty-five million dollar real estate project. So we just like the banking world credit unions cover the wide spectrum. One of my favorite things about dealing with a credit union versus a bank is access to decision-makers. You could go into a credit union talk with their lender and if you said can I set meet with the CEO and talk with them and meet with the Executive nine and a half times they’re going to say yes sure. It’s a it’s a cooperative friendly organization that is now driving loans to you know across the country. There’s over 60 billion dollars in small business loans commercial loans to, to credit unions to businesses across the country. And that doesn’t even count. Rental properties. I know you probably interact with a lot of residential real estate investors and have people looking seeking financing for their rental properties and portfolio. Credit unions love that product and we deal with a lot. Probably about 20, 25 percent of our business is people seeking rental property loans in a corporate name in LLC’s. And we’re giving it to them at really good rates and not the hard money rate guy. Not the hard money right. And so it just sounds like more friendly and a little bit easier almost neighborhood feel to be able to come in there and get things done whether it’s a small loan to start up a business or twenty-five million dollar loan for expansion. Yeah. Yeah. It’s a community-based organization that you know the same reason people like to go get their car loan from a credit union the same reason people have their checking account. There is the same reason you would like to deal with them for their business and credit unions are also much more open than sometimes the perception is that most organizations that maybe there are community-based where everybody in the metro area can join but sometimes their employer group based but they’re even fairly wide open you know in this area. I would bet that there’s probably 15 credit unions that I could go to and open an account today. It’s not the old days of I have to be and work for this factory or company and that’s the credit union. They’re very open and friendly organizations. And it sounds like it’s a little bit easier to get the the loans and the financing that you’re looking for because you guys are more flexible and it’s easier to sit down on this wide spectrum of what you do and it doesn’t sound like you’re fixed on people have to have all this collateral and have to have perfect pristine credit which I’m sure you want the good credit obvious success shows they pay their bills but it just sounds like there’s a little bit more flexibility with your ability to help them get financing before SBA during SBA and even you know when they’ve grown beyond SBA than what we typically see with conventional banks credit unions don’t lend in a box you know there’s a lot of good banks out there but many especially the bigger you go they lend in a box you hit their formula they’ll give you the loan that’s it. A credit union, we, of course, we want that. You have to show the ability to pay it back but we also want to talk with you and understand the relationship into who you are and how you fit into the community and the area and what your plans are and really kind of come up with something that’s a win, win for you and for that cooperative. That is the credit union. Yeah. And what you say means so much to me because I remember my dad was vice president of a bank like way back when I was a kid crawling out on the floor like I was old. And you know like I read the war did not hit the buzzer that you know alarms the police but he
would always tell me of these stories of farmers with handshake deals and just based on the relationship where money would be lent and that still stays with
me you know because I’m financial service going on 20 years now and that’s cool it’s cool that that’s still kind of exists in the world in the credit union space yeah. and you know as I said credit unions have been able to lend to this commercial space for 20 years. 30 years ago it really wasn’t needed because there was 20,000 community banks who did serve that local community and do those loans to people for the right reasons. Unfortunately, as we know those are disappearing all the time and we’ve really filled the niche of that community bank of twenty-five years ago. and that’s exactly what it sounds like. Mark what else. You know maybe I shouldn’t have asked that I didn’t mean what should our listeners and viewers learn about what you guys are doing that’s so awesome that we haven’t had a chance to dive into as we get ready to wrap up. so you know like I said we’re really somewhere of it if you want to meet with 50 lenders. There’s some different groups with us. That’s what we can help you do instead of me. You know we try to be an aggregator efficiency. We’re an advisor. We ultimately want’s best for our people and we can really kind of help you get those dreams and fit the right fit. And, and also if it’s and if it’s not a fit we’re not just going to tell you, you know we’re going to try to talk with you about what you need to do to get that financing you need or what changes you and me need to make. So. So we really try to because we do a lot of times we might say no for the commercial loan but maybe we can help you in some other ways with some smaller consumer financing to get you where you want to go or have different community organizations who can help and advise you to get you where you want to be. Mark where can everybody go to learn more.
www.mbfs.org, that’s Mary boy Frank Sam. mbfs.org there’s a link on there if you want to learn a little bit more about what we do if you’re interested in financing. You can contact us and if we can’t help you in our region among lenders we have a whole network of people similar to us that we can match you up with credit unions all throughout the country to help you out and get financing you need. Thanks for being on it, I really appreciate it. Thank you.
so everybody go to mbfs.org, MBFS.org I’m going to make sure that this is available on the show resources page. I love what he’s talking about because like I said I grew up hearing these stories of what it used to be like being part of a community almost in the lending environment and where handshake deals were done and where trust and relationships were built. And then the trust and relationship that’s established as well. As long as obviously the performance of the business are taken into consideration with lending money and those of you that watch your show know I talk about this a lot. And so I think this is a great thing that you need to consider as Mark said. They’ve got options where they can help you as you’re just getting started when you are in the SBA to get the longer term and lower rate. Even beyond that. So you’re able to get in with his organization and start relationships early and then continue to grow those relationships all the way through the expansions of your business. That’s really hard to find with any institution. So make sure you go to mbgs.org to learn a little bit more about being able to get approved for the most money for your business at the best terms. So that’s in mbfs.org, Make sure you check it out we’ll put it on the share resources page. Thanks, everybody for tuning in. Have a great day.