Raul Anaya Bank of America President Greater Los Angeles Market Raul Anaya has been with Bank of America for more than 20 years and heads up the commercial banking group of business clients with $50 million to $2 billion in revenue. As president of the Los Angeles market, Anaya sets strategy, coordinates lines of business and oversees philanthropic activities. Question: Who is Bank of America lending to? Answer: If you talk to our small business group, which handles companies up to $5 million, they’ll tell you lending is across all industries. There tends to be a lot of consumer products companies with a lot of activity within our business banking group. With interest rates being so low right now there is a lot of interest in real estate financing. In commercial banking, there tends to be more opportunities financing acquisitions as well as expansions overseas. Q: What factors do you consider when deciding whether to approve a loan? A: We look at the financials, but we also spend a lot of time with the management team, understanding their strategy … and trying to understand what their long term objectives are. We look at the particular industry and leadership position they have in the industry. Q: What challenges and pitfalls do you see when it comes to lending? A: It is a very competitive market today. I don’t understand why there continues to be a perception that banks aren’t lending. All banks are eager to make as many good loans as possible. I think the challenge is that it is competitive right now. Q: Why do you think there’s a perception that banks don’t want to lend? A: Part of the reason is because we continue to have a high unemployment rate. Until we get more favorable economic news … I think there is a perception the economy is still stalled. Q: How does Bank of America set itself apart from other banks? A: We take pride in positioning ourselves as a trusted advisor to all of our clients. We not only provide the products and services but are recommending solutions after spending considerable time with the executive team and ownership. Q: What can a borrower do to have a better chance to get a loan? A: It is about developing a relationship with their bank and communicating their strategies and objectives — not only within their marketplace but also within their industry. Obviously being organized and having information readily available for the bank. Lastly, having a good sense of what type of banking services they need. Q: What questions should a borrower be ready to answer? A: One of the first things we like to understand from any company or their management team is their vision for the company three to five years from now. Q: What is the lending environment for those who get turned down and what are the alternatives for them? A: In those situations where we are not able to approve the loan, because perhaps they had been unprofitable the last couple of year or other reasons, we will explain the reasons why we are not able to provide financing today. There are other partnerships that we have developed like with the Valley Economic Development Center, and we will send business their way. What we’ve found is folks like the VEDC can provide that loan because they are not under the same regulatory requirements that commercial banks are under. At the appropriate time when their financial profile improves and addressed the issues as to why they were declined, then we are able to provide the financing. Scott Aney City National Bank Senior Vice President Regional Manager Commercial Banking Services Scott Aney has been in banking for more than 30 years having worked for Bank of America and Citibank before joining City National Bank in 2007. His territory includes northern Los Angeles, Ventura and Santa Barbara counties. Q: Who is City National lending to? A: In the Valley, most of the loans are to the distribution and wholesale and service industries. Q: What kinds of loans is City National providing? A: We are seeing an uptick in company sales and mostly deployment in capital accessing low interest rates. We have a customer who has been in the Valley for 30 years, and they lease their building. Last month, we helped them with an SBA loan to purchase the building. Q: What factors do you consider when deciding whether to approve a loan? A: The numbers have to make sense, the business strategy has to make sense, and the company’s history has to make sense. You have to be comfortable that if something goes wrong, whether it is in the control of the company or not, that the company has the ability — not only the willingness — but the ability to get out of the mess. Q: What are the pitfalls or challenges in lending? A: There are a lot of banks chasing borrowers. What happened after we went through the recession is the survivors were able to weather through the tough times. It is not as tough to lend; it is (tough) finding them and competing with the bank across the street. Q: Are there targets or thresholds you try to meet? A: Absolutely. Every year you have growth goals. When we hit the recession it was the first time in my career I had flat growth goals. I am back to having growth goals again. Q: How does City National set itself apart from other banks? A: There is tremendous value in having an experienced banker — someone who understands how they are going to get repaid. It does not always seem evident to the borrower or the people in the community, but those (loan) structures make a difference in terms of whether you get repaid, whether the bank is happy and whether the customer can borrow next time. Q: What can a borrower do to increase their chances of getting a loan? A: The importance of the quality of financial reporting to banks makes a big difference. It is often difficult for companies that are growing to slow down long enough to pay attention to the finance side, to make sure the IT things are in place internally, that the financial reporting makes sense, that you have a good CPA. By taking the time to do that and aligning with the proper service providers, CPAs, and bankers that ability to borrow money becomes easier. Q: What questions should a borrower be ready to answer? A: Where they are going to be in 12 and 36 months? How much money do you need? It seems obvious, but I’ve gotten answers like, ‘How much can you give me?’ It is not negotiating to get as much as you can. It is about what you need to get where you are going. Q: What is the lending environment like for those who get turned down and what other options are there? A: I believe there are greater alternative sources now than there has been in a while. I will point specifically to government-backed programs. The SBA in itself has provided some additional support in the community in terms of making banks more comfortable in terms of financing structures by providing some guarantees. There are also organizations like the VEDC and Kiva. Robert J. Lagace Chase President Middle Market Banking Robert Lagace supervises a team of nine bankers and support staff in a geographic area that extends up to San Luis Obispo and out to Kern County and includes satellite offices in Northridge and Santa Barbara. The middle market banking group targets companies with revenue ranging from $20 million to $500 million. Question: Is making the final decision on who gets a loan a tough, thankless job these days? Answer: Yes, if your perception is that the banks don’t want to lend money right now. That is not what we are trying to do. We are actively looking to make loans. Then it is a matter of a competition. We only started this business in 2009 and so there is an incumbent there that wants to protect that business. Q: How much does subjectivity play into the decision to approve a loan? A: A lot. There are a number of parts but it starts out with subjectivity. It starts out with our view of the company, its position in the industry and the quality of its management. If we cannot get comfortable with that, it doesn’t even go to the numbers. Q: Do you have targets or thresholds you try to meet? A: The only threshold is the size of the company. We are looking for companies between $20 million and $500 million. If it is below that level, we have a business banking group that focuses on that. Above that level we have a corporate client lending group. We are trying to match our resources with the appropriate types of companies. In terms of loan size, the smallest loan we have in our book is about $1 million. We haven’t hit an upper threshold in the size of the loan. Q: How does Chase differentiate itself from other banks? A: Where we really set ourselves apart are in a couple of ways. One is our international platform. For companies that have an existing international component to their business, or are looking to expand internationally, we are the best option they have. We can meet their needs almost anywhere in the world. Number two, with the group we have we try to feel like a community bank in terms of the local presence, customer service and the way we quickly respond with a single signer here in Los Angeles. Q: What can a company do to increase the chance of getting a loan? A: In middle markets, if they are running a profitable business and have good prospects it will continue to be a profitable business; they have financial statements that have been reviewed (by an accountant). If they have that and a strong management team, that’s all they need. Q: What questions should a borrower be prepared to answer? A: Questions about their business, their vendor relationships, their customer relationships, and the quality of their earnings. We look at their collateral, in terms of their working capital, what their receivables look like, where they come from. It all depends on what we are lending against. If there is a guarantor who’s going to be a part of it, then we also have to look at the quality of the guarantor’s financial statements. Q: Out of 10 loan applications how many get approved? A: We don’t have an application process in the middle market. It is much more relationship driven. Most of the deals we lose are due to competitive issues — they decided to stay with the incumbent bank. Generally, the companies we develop a relationship with and a dialogue with we pitch on with the intent to win. Very rarely does it get down to there’s a company we like that we turn it down. It does not go that route. Jim Metcalfe California Bank & Trust Vice President and Branch Manager As the branch manager in the Encino location, Jim Metcalfe oversees the operations of one of the two branches of California Bank & Trust in the San Fernando Valley. Metcalfe spent much of his banking career with Wells Fargo and was at IndyMac bank for four years before joining California Bank & Trust in 2009. Question: Is being part of the loan approval process a tough, thankless job? Answer: It is harder than it used to be. We are in a period where cash flow is depressed, valuation has been depressed. In that environment, it makes it a little tougher to find those loans we can make. We’ve had to tighten the lending profiles a little bit. Q: Who is California Bank & Trust lending to? A: We are still committed to the small- and mid-market segments. Some of the other banks are more interested in the higher-end markets. Our focus is on wholesale, services, manufacturing. Q: What is the money being used for? A: Working capital and expansion. Q: What lending criteria does the bank have? A: We look for a minimum of two to three years in business with the last two years being profitable. Cash flow is important to us. Secondary sources of repayment are important to us. We are always looking for adequate asset valuation, be it real estate secured or inventory secured. Q: How much does subjectivity factor in when deciding to approve a loan? A: We are certainly doing a lot of that lately. Subjectivity can make or break the deal. Some of the things we look at are management’s experience. We look at how much control they have over the aspects of their business, and we look at the conditions of their accounting procedures and processes. Liquidity is often used to make a subjective decision. Q: What challenges and pitfalls do you see when it comes to lending? A: Weak cash flow, collateral valuation, lack of liquidity, the lack of secondary support, and over-leveraging and over-extending. Q: Are these the reasons you would turn down a loan? A: Yes. Cash flows are depressed. It is hard to put together a string of years together where we can demonstrate consistent cash flow. We are seeing some improvement, but it is not a strong enough trend yet. Q: How does California Bank & Trust set itself apart from other banks? A: We like to think it’s our relationship building process. We are not transactional in nature. We don’t do all of our business in the office. We go out and partner up with our clients. Q: What can a borrower do to have a better chance to get a loan? A: Don’t wait until your cash flow has been compromised. Right now what we are seeing is people coming to us when they have exhausted their liquidity. My suggestion is don’t wait until you are in a desperate situation. Q: What questions should a borrower be ready to answer? A: They need to have a strategy for the new loan — how are the funds being used? Are they aware of what their weaknesses are? It is a little telling when they don’t understand that and we discover those weaknesses they are not aware of. That of course is a red flag for us. Q: What is the lending environment for those who get turned down and what are the alternatives for them? A: If they are not bankable it is little tough because all the banks are being as aggressive as they can be. I don’t see a lot of people that get turned down by one bank getting picked up by another. There is not as much fruit on the tree as there used to be. David Ross Grandpoint Bank Chief Credit Officer Executive Vice President David Ross began his banking career in 1973 at Crocker National Bank. He worked at a number of Southern California financial institutions before joining Grandpoint Bank in 2008. Question: Is being a credit officer a tough and thankless job? Answer: Pretty much. I have to say no to people who are trying to make a living by finding new business to bring into the bank. We have to protect the bank and take care of the customers at the same time. Q: How does it make you feel when you have to say no? A: The best thing ever is to say no, but to explain why we say no and explain it in a way to the customer that makes them come back in the next year or two with things changed, as we suggested, and then we can take care of them. That is the best feeling ever. People will take advice and improve their situation. Q: Who is Grandpoint lending to? A: Grandpoint is a business-oriented bank. We look to businesses and their principals, the owners and senior people. We are not a consumer bank. Q: Are there industries with more activity than others? A: We see a lot of real estate transactions. We look to manufacturers, distributors, wholesalers. Q: What is Grandpoint’s lending criteria? A: We are not formula lenders. Our principal factor is, does the deal make sense? Does it help the customer and serve their needs while protecting the bank at the same time? It is a two-way street. Q: What challenges or pitfalls are you seeing when it comes to lending? A: The economy, interest rates. Historic low interest rates are an enormous challenge for us from an earnings perspective. Tremendous benefit for the customer from a cash flow perspective, on the other hand. Q: How does Grandpoint differentiate itself from other banks? A: We try to find ways to make the deal work without having a specific formula as some of the bigger banks do. We do that by evaluating everything, being consultative with the customer, asking our borrowers to suggest other ways to make the thing work when the initial request doesn’t quite fit. Q: What can a borrower do to increase the chance of getting a loan? A: We look to two sources of repayment. The borrower needs to understand that. The primary source is generally related to the purpose of the loan. If you’re buying a piece of property, the cash flow from that property would take care of the loan. We always want a secondary source in case things go bad. Sometimes that’s collateral. Sometimes it’s net worth. Q: What questions should they be prepared to answer? A: The borrower should provide us a true picture of their entire financial position — personal finance statements, business finance statements, verification of assets, tax returns, K-1s. Often time the borrower doesn’t provide their K-1s because they are not part of the regular tax return. We need all of those to determine what the true cash flow actually is. Q: What is the lending environment like for those who do get turned down and what are their options? A: It is tough out there. The economy is still very difficult. With the low interest rates it truly does help from a cash flow perspective with a lower payment amount, but the borrower needs to have the income to demonstrate they can repay the loan. If they don’t, there’s not lot of places other than hard money or finance companies.