Small business finds some banks still willing to lend.

Smaller local banks find their niche in working small

Niche banks and lenders, now more than ever, have a role to play in the Southland economy, given that most mainline banks are generally tightening up on their loans and lines of credit.

Among borrowers, small businesses say they need to find sources of capital -- and now, some small lenders and banks say they can fill the bill.

One example of a lender willing to deal with small businesses is South El Monte-based Western Industrial National Bank, a $50 million-in-assets lender primarily devoted to manufacturers.

"We will lend up to $2 million, but we also extend loans for as little as $5,000, on equipment loans," said Thomas Walker, chairman and chief executive of Western Industrial. "We generally charge about 1 percent to 2 percent above the 'reference rate,' which is First Interstate's prime rate."

Western Industrial's 2,000 clients are heavily concentrated among the 3,000 small manufacturing firms -- mostly aerospace subcontractors and garment-makers -- that dot the region's industrial belt in El Monte, South El Monte, City of Commerce and City of Industry, said Walker.

But Walker said he'll lend to non-manufacturing industries, and "we have loans as far north as San Francisco, and as far south as San Diego." A very successful loan type, said Walker, is a business loan, secured by a business owner's house.

Most of Western Industrial's loans are "asset-based" -- that is, hard collateral, such as plant and equipment, is pledged against the loan. But some receivables, or cash-flow, lending does go on. "But we are not a factor," cautioned Walker, describing finance companies that specialize in lending against -- actually buying -- receivables, and in doing collections work.

Western Industrial is used to dealing with businesses that are unfamiliar with banks and banking procedures, said Walker. "A lot of borrowers, we have to take them through the process, they've never borrowed anything before. But we show them how to do it."

(Interestingly, Western Industrial was started in 1983 by 25 South El Monte-area business owners, who were frustrated at the lack of response from large banks.)

One lender that will lend against receivables is Michael Silberman, president and chief executive of UMB Commercial Capital, a subsidiary of the Pasadena-based United Mercantile Bank & Trust Co., N.A.

Silberman's operation itself is a bit of a start-up operation, having been founded this year, so he says he identifies with entrepreneurs willing to take risks.

"A typical client for me will have sales from $1 million to $10 million a year, a personal net worth of at least $100,000, and net worth or working capital of at least $75,000 in the business," said Silberman.

Lending rates depend on several criteria, including the quality of collateral, and Silberman will lend against receivables -- in fact, he likes that, particularly if he can get a "notice of assignment," which means that a client's debtors promise to pay Silberman directly.

His company charges interest that varies from the prime rate to prime plus 3 percent, and loan origination fees of 0.5 percent to 3 percent of the loan. There can be additional commissions.

Silberman's two-year goal is to develop a roster of 75 to 150 good clients, each with a credit facility of $250,000 to $750,000, although he says he has no hard rules on anything.

Another small bank willing to get involved with small businesses is the West Los Angeles-based Western United National Bank, led by President Steve Fried, who bought the bank two years ago.

Western United will extend loans for as little as $10,000 for equipment purchases or on accounts receivable. Fried said he also frequently lends in the $50,000 range, either for general commercial loans, or for loans made under Small Business Administration aegis.

For general business loans, the $23 million-in-assets Western United charges prime plus 2 percent to 2.5 percent, and there may be points and minor fees. Against receivables, Western United charges anywhere from 11.5 percent to 18 percent. Like other small banks, Western United will lend against a business owner's home. The SBA-approved loan rate is 10.75 percent.

Said Fried, "We will deal with the small business borrower who the big bank does not find it cost-effective to deal with. We have low overhead, and we can afford to take the time it takes to get to know the borrower."

Western United will make loans to startup businesses but, cautioned Fried, "only when the principals are experienced in their line of business and are putting in their own capital also."

Sometimes getting a loan is just a matter of loan-shopping to find the bank or lender in a lending mode, said Jerry Cornwell, partner since 1971 with the West Los Angeles-based CPA firm Singer Lewak Greenbaum & Goldstein.

He recommended, among other banks, that small borrowers check out American West Bank in Encino, Guardian Bancorp in downtown Los Angeles, Mercantile National Bank in Century City and Marathon National Bank in West Los Angeles. He has also heard that Imperial Bancorp is lending to small businesses.

"You just got to go to a lot of banks, and find the one that is comfortable with your needs," said Cornwell, a 30-year CPA industry veteran. "It's a lot tougher than even six months ago, but banks are lending."