NEW YORK -- Based on what she's seeing among the bank's more than 3 million small-business customers, Capital One's Keri Gohman is upbeat.
Business owners are reporting better earnings and reinvesting in their businesses, and that's translating into a rebound in loan demand, says Gohman, the head of small-business banking at the McLean, Va.-based bank.
But there's still caution out there. When it comes to reinvesting, many small-business owners are taking advantage of cash they set aside.
“We're seeing them coming back from the recession smarter and more thoughtful about their business plans,” Gohman says.
Capital One (NYSE: COF) is more confident about lending to small businesses that many lenders considered a bad bet during and after the recession.
But if it can't give a loan to a company, Capital One will help it find alternatives.
Gohman spoke recently with The Associated Press about the small-business climate. Here are excerpts, edited for brevity and clarity:
Question: How has your small business lending grown since the recession?
Answer: We went through the Great Recession and we saw our business owners really pull back. We saw that reflected in small business sentiment. They were concerned about the future. We saw them begin to save their cash.
As the economy has started to improve, as sentiment has started to improve, we've seen their earnings begin to recover, we've seen them begin to reinvest in their businesses. Not all business owners are using loans to invest; some are taking advantage of the savings they set aside. Many don't want to become too leveraged. But we've seen our demand pick up. Our application levels are at pre-recessionary levels. We've been growing every year. And we've been able to meet that demand.
Q: Are you concerned that some companies may borrow too much?
A: No, we have continued to be incredibly focused on being responsible lenders. We have business bankers who are expert in credit management and who are specialists dedicated to working with our small-business owners. We spend time talking to owners about whether now is the time is appropriate, whether it's something that might be appropriate down the road and how to prepare for it. Or how to structure a loan. It's in our best interest to partner with small businesses to make sure they are making well-informed choices. We continue to have very high standards when it comes to underwriting, and we're seeing small-business owners really thoughtful. They don't want to be overextended, either.
We see business owners looking for lines of credit, which have a lot of flexibility. And many business owners at an earlier stage of their business or coming out of the Great Recession and who are just starting to rebuild their business might take a smaller line of credit and then begin adding to it as they get a more established track record or feel more comfortable taking on more credit risk.
Another part of our business growth is in loans backed by the Small Business Administration. They help us provide loans to companies that might not otherwise qualify or that might not be ready for a conventional loan. In our last survey, we found that while 80 percent of small-business owners were aware of SBA-backed loans, a much smaller percentage -- under 10 percent -- were actually taking advantage of them.
Q: What happens when a loan officer at a branch encourages a company to seek a loan, but underwriters then reject the application?
A: The process starts with our understanding a small business, its business plans, its goals, how it has performed historically. That's the local relationship. We view our loan officers, our team members that are working with the business owner on a day-to-day business as part of a team. They'll communicate with a team of underwriters and a team of support professionals. All of us have a goal to make a responsible decision for that customer.
We go to great lengths to try to find a way to support the business owner as best we can. We have a process where, if we can't do a conventional loan, we see if there is a way to make this work with an SBA-guaranteed loan. We also have a huge number of (small loan program) partners like Kiva, like Accion and we'll partner with them to see if they can help that business owner if they're not quite ready for a conventional loan. If they're not ready for a loan today, we ask, how do we make sure if they want a loan in the future, (that) they make sure they're prepared? That becomes a whole system that supports the business owner.