Chris Bjorklund: Hello, I’m Chris Bjorklund for the Virtual Business Center. Today I’m talking with Ed Lette, chairman and CEO of the Business Bank of Texas. Lots of national news sources, Ed, are saying that banks all over the country are simply not lending money. They’re not making loans. Is this really true?
Ed Lette: No, ma’am. It’s not. There’s two things that are really going on in our economy as a whole. Number one, sales have dropped, so when sales drop, business loan requests drop. The other side of that problem is deleveraging. We’ve got a lot of businesses that have received credit through things such as business credit card programs which had no discipline in them. So the companies in fact have kept going and maybe they should have been cutting expenses. The classic that I’ve seen so many times that I’m sick of seeing it and that is the scenario where people have taken their personal credit cards and that credit card line they got to a too big to fail bank and kept pumping that money into the business instead of laying people off and cutting overhead and so therefore, they’re in a crunch, they come to the bank sometimes to say, “I have lots of collateral but you won’t lend to me.” Well, the problem is they don’t have the cash fund because sales are down and overhead is not down. Overhead is up and they’ve put themselves in a very tough position and they’re not a borrower, they’re like a lot of the too big to fail banks, they need a capital injection. They need more capital, not borrowed capital.
Chris: So how does your bank make business loans credit decisions?
Ed: Well, we make them right here at our bank and the buck stops here and we . You know this collateral is last. The character and the capacity and in that capacity area falls the cash flow and part of that also falls back on the character side of the financials of the individual and how leveraged they are. Again, the problem I see and this is worldwide but then our worldwide economy is the entire world is deleveraging, getting rid of debt that they really couldn’t afford in the first place. So a lot of this is the problem that is created by the banking industry because we lent without looking at the proper way to lend. If you got a second…here’s the point I see more often than anything else and that is, a business that has received a credit card line of credit as high as $250,000 with no strings attached. Well, when somebody gets that much money lent to him, there needs to be some mechanisms in place to make sure that they use the money and apply it properly within the business. And so many times, that was not done and there was no banker there to help him because the whole idea the banker was low-touch banking. Well, low-touch banking doesn’t work. You need to have a banker who is a…he is a trusted adviser and part of your business.
Chris: Are there certain kinds of businesses you prefer not to lend to, Ed?
Ed: We look at every loan but we, as a bank, we are a commercial and industrial bank. We do not do retail. We have some that are hybrid where they have some retail but the majority of their business is either wholesale or manufacturing or something in that nature. But the most important thing is that the banker actually looked at the credit. Today what I’m seeing from most commercial banks is the first thing they’ll say to you when you walk through the door is you’re an SBA candidate which is horrendous. It’s unbelievable that you can make such a stupid statement that you’re an SBA candidate and you hadn’t even looked at the financials of the customer. All these big banks want to do is make guaranteed loans. You’ve got to drill down the company. You’ve got to take the time. Now as an example, Chris, we do something that I’ve never seen another bank do. We actually share these financial statements spread with you along with a comparison to their industry by size in that analysis.
Chris: Now what do you think the economy is likely to do over the next several years right in central Texas and how long do you think it will take for the credit market to recover?
Ed: Well, fortunately for Texas, we’re in the best position in the 50 states mainly because of the attractiveness to our state. As an example, there are many businesses that would love to get out of California and the tax burden and we are actually getting those types of business moving here to Texas. In fact, in my opinion, we were the last ones to go into this recession and we’ll be the first ones to come out of the recession and it’s basically again because of growth. Last year, Texas grew by more than 100,000 people. Well that’s a city the size of Lubbock. Every year, it grows and it seems to be from what we’re picking, outlined in the Forbes article, we’re picking up even more growth in Texas as it goes forward. So it’s one of those scenarios where Texas is just in the right spot at the right time.
Chris: And back to the credit market, do you think overall, it’s looking positive in Texas and beyond Texas?
Ed: It’s looking positive but we still have some banks that are going to fail and it’s mostly related to the real estate side of it and it’s just going to happen both in Texas and the rest of the country but overall, Texas has got an upper hand on the rest of the states but no, I don’t think it’s going to be a fast turnaround. I think today’s fed action proves what I have been talking about for months now that we’re in a deflationary period and it’s going to take several years to get out of this. We’re going to be like Japan was in the ‘90s and actually are still there.
Chris: Ed, thanks for talking to us today. I appreciate it. You’ve been listening to Ed Lette, president and CEO of the Business Bank of Texas. Our Virtual Business Center is a free resource for all businesses, made possible by the Business Bank of Texas. I’m Chris Bjorklund.