TSB Money Matters

The Entrepreneur's Guide to Smart Commercial Borrowing

• The Savings Bank • Season 1 • Episode 3

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Unlock the secrets to effective cash flow management with commercial lending mavens Ed Fitzgerald and Mike Rossetti, who join us to illuminate the often-overlooked art of leveraging business finances. Engage with a discussion that promises to transcend the mere numbers and delve into the strategic advantages of savvy loan utilization, from weathering the unpredictability of seasonal business cycles to securing a lifeline for unforeseen expenditures. We navigate the complexities of working capital, the lifeblood of daily operations, through the seasoned perspectives of Ed and Mike, offering you a masterclass in financial acumen designed for businesses big and small.

The episode unfurls an array of scenarios where the right type of loan could mean the difference between stagnation and growth, examining the unique requirements of industries that depend on equipment financing or real estate investments. Our dialogue also emphasizes the cornerstone of any successful loan process—the relationship with your lender—and provides insight into the documentation dance that often ensues. Through the lens of our guests' experience, we impart crucial advice and underscore the human element that can make commercial lending a less daunting journey, ultimately equipping you with the knowledge to solidify your business's financial footing with confidence.

The TSB Money Matter Podcast is produced by The Savings Bank, a community bank headquartered in Wakefield, Massachusetts. The information presented is for informational purposes and should not be considered financial, legal or tax advice. Consult with a banker or financial advisor about your personal or business finances.

Member FDIC. Member DIF. Equal Housing Lender.

Visit us at www.tsbdirect.bank

Ally Houghton:

Welcome to the TSB Money Matters podcast, where we dive deep into the dynamic world of banking, finance, and everything in between. I'm your host, Ally Houghton, and we'll tackle topics including the landscape of financial institutions, economic trends, and the ever-evolving technologies shaping the future of banking. In each episode, we'll unravel the complexities of financial topics, bring you insightful interviews with industry experts, and throw out leaders and innovators who are on the forefront of the banking industry. Whether you're a seasoned financial professional, a budding entrepreneur or someone simply curious about the forces shaping your financial world, this podcast is for you. Today, we are welcoming Ed Fitzgerald and Mike Rossetti from our commercial department at TSP. Welcome to both of you.

Michael Rossetti:

Thank you, thank you.

Ally Houghton:

And Ed. What are we going to be talking about today?

Ed Fitgerald:

Today's really going to be focused on commercial lending and sort of what that's like and how it's similar to personal borrowing and how it's different because it is different. And so that's basically it. That's a quick summary.

Michael Rossetti:

And I'll just be adding, like working on the commercial services side and how a loan and the deposit piece of it will work, and I'll add some information on that.

Ally Houghton:

So, to start, why are commercial loans so important to businesses and why should they consider them?

Ed Fitgerald:

Well, first of all, you really need to think of it, as, even if you've got a business that's been established for a number of years, you need to plan for tough times just as well as planning for good times, and so one of the very important things is that, first of all, businesses are seasonal, and it may be more than you think.

Ed Fitgerald:

Everyone knows that a landscaper's business is seasonal. Everyone knows that. You know something that if it involves plowing, you know that that's something that only happens in the wintertime and so forth. But beyond that, even small retailers have a lot of seasonality in their business, centered around things like holidays, and so a big important thing for people to consider is to have a line of credit, and one that is not borrowing money for the long period of time, but having money available on a short notice so that you can get it whenever you need it.

Michael Rossetti:

And it's all about cash flow. I mean, what Ed is speaking to is that because of the seasonality and fluctuations and how much money you're bringing in versus how much money you're paying out, there could be some shortfalls.

Ed Fitgerald:

So I think a line of credit just gives you that flexibility to borrow money in the short term with knowing that future accounts receivables will be in to pay that down or pay that off, and it's important because sometimes you'll have a client that you're doing a good amount of work for and you can't necessarily bill them until the work is complete or you reach a certain benchmark, and so you have to pay your people. You have to, you know, survive and pay for the lights and utilities, and everything on an interim basis.

Ally Houghton:

What are some of the different lending options businesses should look for?

Ed Fitgerald:

Well, I think one of the things is, when you're purchasing something, do it wisely. We do a lot of small business financing things like vehicles and things like that for clients if they're buying equipment. Very often you can get financing from wherever you're buying it from, but the terms that you might be offered might not be all that competitive, but it's easy. So if you're working with a local bank, you have an opportunity to sort of measure what you're potentially being offered by a truck dealer, an equipment dealer, a computer dealer versus whatever you might be able to get from your local bank.

Michael Rossetti:

Yeah, I mean usually a bank you establish a relationship versus. You know we're not looking at a customer as a transaction. So I think a lot of it that you'll see out there if you're getting financing directly through the vendor that you're purchasing from, it's just you know they're just getting a deal done, closing the books and then moving on versus your banking relationship can kind of look at the big picture that what you're trying to do, what your goals are of purchasing this and looking at and helping you along in the future like Ed said, offering maybe an extension of credit through a line or just looking at can you really afford this and being honest up front with you about that.

Ally Houghton:

Are there certain loans that would be more beneficial to a small business compared to a larger business?

Ed Fitgerald:

To be honest with you, I don't think there's a significant difference between the needs of a small business versus a larger business. I think that what it is is it's a matter of size. If you're operating a larger business and you've got 50 employees and they're all over the place, you might need things like corporate credit cards and things like that. But if you're a small business and there's three or four people and it's much easier to manage, then you don't have those requirements. But other than things like that, there's not a lot of difference. It's really managing your cash flow, making sure that you don't make commitments that you can't meet, and that's, you know. That's key. So you really need to have two things you need to have someone that you can trust as a financial advisor and you need to have a banker that you can trust as well.

Ally Houghton:

Can you explain a little bit more about what working capital is and why it's so important to a bank or to a business?

Ed Fitgerald:

Sure, I mean working capital is really it sounds a little bit like what it is it's really having money, money available for you to do what you need to do when you need to do it. And so if you are, for example in your introduction, Ali, you mentioned a fledgling business If you're just a fledgling business, you can't go into it without having savings and having money that you can go back to and use and then replenish as you need. If you are an established business, that's where the line of credit comes into play, because you can pull from it, you use it while you need it. But working capital is really the gap between what you need to meet all your requirements for that month and what you have to meet all your requirements for that month, and so it's really you need to have an amount of money that's available for you just to do your day-to-day business. Even if you're in your slow period, you still have to pay your employees, you still have to pay the utilities, the rent, everything else that has to be paid.

Ally Houghton:

Could you give us some real-life examples of situations that a company or a small business would need a loan?

Ed Fitgerald:

Oh sure. Well, one that comes to mind very often is that where a lot of small businesses rent space, especially after they've been established for a while, they very often will find that it might be more cost-efficient for them to buy, whether it's a condo unit that their retail store is in or it's a, you know, commercial unit where they can have a garage and have an office and have something that is theirs, and so one of the things that banks do is commercial real estate loans. So that's a situation where we would do a mortgage. We would do it. People are familiar with mortgages because they buy homes, but commercial mortgages are different, because with homes it's all about the value, but with businesses it's all about the cash flow.

Michael Rossetti:

Yeah. So I mean, and it's said it perfectly as far as you know, I think each, you could look at each business as just being different. You know everybody runs their business differently. You're in business to do things, you know. You might be buying merchandise and reselling. You might be, you know, a landscaping company where you need to purchase equipment, you know. But the equipment, you know, is so you can get a job done, and so it's the flow of the money coming in, is so you can get a job done, and so it's the flow of the money coming in. So I think it's important for you to look at is, you know, you don't want to overextend yourself, you want to, you know, keep your business running smoothly. So you just got to pay attention to what's coming in and what's going out on a daily basis.

Ed Fitgerald:

A different example is that you might we've talked about equipment and we've talked about a little bit about buying a building we had talked about a line of credit. You know, sometimes there are like specialty things that need to be done. You know, you might have a need that you don't normally have, and so you might say okay, well, this is $5,000 or $12,000. I can just pay out of my bank account. I've got that in the bank account, I'm going to pay for it.

Ed Fitgerald:

But you have to look at well, if I do that, will I have the money to pay X, y and Z? And so that's why you really need to have the right balance of services and you need to have the access to the money that you need. And you need to have the ability to recognize and to have someone to bounce something off of and say hey, you know, should I use my line of credit for this or should I do a term loan? And you know, each situation is different. And that's where you talk to your lender and, and you know, talk to a person at at the bank that handles lending and say you know this, this is what I need to do. How do I best do that?

Ally Houghton:

and you know, that's that back and forth is very important when a business owner is trying to decide who to work with to get their small business loan or whatever loan they're looking at, what should they look for in an institution or a commercial banker when trying to decide who's best to work with?

Ed Fitgerald:

I think you have to look at. You know, is it a nice guy like Mike Rossetti? I think you need to say you know who are you going to be working with. But I think it also comes down to you want to work with an institution that's local. You want to work with someone that is doing business in the communities that you're in, may have an interest in supporting the communities that you're in, and that's, I think, the difference between, you know, working with some sort of national outfit or working with a local community lender who, a chances are, knows the nature of the communities you work in, may even know some of your clients, may even know some some folks that you do business with yourself and can, you know, be a trusted resource to reflect upon. So I think that's an important thing to think about.

Michael Rossetti:

Yeah, I think it's all about comfort. You know it's who you're comfortable with and after meeting with somebody, doing your due diligence and saying, you know, is this a bank that I want to deal with? And then getting a feel for during the process or the vetting of you know your bank, did they communicate well? Did they hear what I was saying? You know? Were they listening to me? Do they know my business? Have they done this before? I think you know everybody has a good feel for when their interaction is really key, of what you're going to see during the approval process and you know and who you're going to be working with.

Ed Fitgerald:

I think is the most important, I should say that documentation, whenever you're going to do a business loan of any kind, you're going to need to sort of provide everything that you would normally provide if you were going to apply for credit yourself to do a mortgage for your own home.

Ed Fitgerald:

You know things tax returns, financial information, what do you have in bank accounts, et cetera Because the lender needs to know your whole financial picture in order to best serve you, and the fact is that not everyone is going to qualify for everything they may want to do, and so sometimes you may have to come up with some sort of interim situation, temporary situation. Sometimes you could even end up in a situation where we have small business administration supported lending and sometimes, if a client is not strong enough by themselves but have a good track record and that they've been doing what they're doing for a few years and they're doing all right, but they just can't get over that next hump without some financing, a good bank will work with the SBA to help them, and the SBA can provide the sort of I don't want to use the word insurance, comfort, comfort.

Michael Rossetti:

Yes, comfort yeah.

Ed Fitgerald:

Right. Comfort Mike is the right word, and that can be important. So I think that you know there is an approval process and you know, it's just one of those things that you do have to go through and you have to keep a positive outlook throughout the whole thing.

Ally Houghton:

So positive outlook throughout the whole thing. What is some of the more important information that a lender or somebody going for a loan should know about the whole process from beginning to end? What do they really really need to know before jumping into that?

Michael Rossetti:

I mean, I think again it goes back to trusting Look at that commercial loan officer as your trusted advisor and that he's going to kind of just walk you through the steps that are involved gathering documents. What is the first stage of ordering? If it's an appraisal on a property, if we're collateralizing something, I think it's key is communication. I think your loan officer's job is to communicate as best to you and as frequently as possible, the steps that are involved in this and kind of painting a picture of what it's going to take to, you know, move this along and get it closed by a certain date, and I think that's important to you. You're looking at like, when am I going to get the money? Or when am I going to be into that property? You know when am I going to be able to buy that truck, whatever it is, because you're basing what you are going to do, you know, down the road based on that, you know that loan that you're going to be getting and the funds available to you.

Ed Fitgerald:

The only thing that I would add to that those are all really important points that Mike pointed out. There's two things I guess I would say, and that is that if you're doing something that's a larger purchase, like a real estate loan, you can't expect that you're going to have that loan done in a week. You have to have sort loan done in a week. You have to have sort of the right expectations. You know, the larger the loan, the larger the requirements, the longer it's going to take to get through the steps that you need to, you know, to help avoid issues. One of the things that banks are doing and we're doing is creating avenues for clients to be able to do, for smaller loans, things like online applications, automatic, you know, decisioning and things like that. But those are for small requirements and those are things that can get done quickly. But on the larger, if you're looking to do something larger, just plan on more time. That's the only thing I would add.

Ally Houghton:

So really for any businesses that may be concerned about the approval process or how to get started, the best course of action for them would just be have a conversation with the banker they're working with.

Ed Fitgerald:

Absolutely. Yeah, the conversation is important, honesty is really important, and I say honesty, not that that people are not honest, but full truthfulness and and don't try it if if you're having a little bit of struggles and or you've had some struggles, just be open about it, because the the best thing that you can do is explain where you've been and there, therefore, we can help you get from where you are to where you want to be.

Ally Houghton:

So you know really transparency and open communications, Anything you'd add, Mike.

Michael Rossetti:

Yeah, I think that's truly. I mean it's a process I mean you've really got to look at is that you know your key in getting the loan closed, but then your loan officer is too, and I think there's a team behind the bank that's trying to move the process along as fast as possible. But there are obstacles, there's things that come up all the time during the approval process. But I think, like Ed said, if you're painting a picture of what you're looking for, what you've done in the past and what you're looking to do, and I think, just the listening and the communication piece along, I think you can kind of work things out and then that process will move that much quicker.

Ally Houghton:

Is there any final advice you want to give anybody that's thinking about getting a commercial loan?

Michael Rossetti:

I mean, I think it's truly like, I think you just got to be comfortable in the process and the person that you're working with, I think, is key. You know, for me personally in my personal life, it's all about the communication and who you're dealing with and you know, are they getting back to you, are they responsive? And I think that's all you can ever want you know in any sort of buying process or and I think the relationship is key to you know to getting your loan closed.

Ally Houghton:

I want to thank you both for joining us today. I think this gives a lot of information to anybody that's thinking about getting a personal loan or how it could help their business, and I want to thank our listeners for listening, and we will be back soon with another edition of TSB Money Matters.

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