It seems like a spat that’s been around since Wells Fargo & Co. drove its stagecoach across the Old West: Who serves small businesses better,small banks or big ones?
Big banks certainly are more interested than they used to be in the Southland’s vibrant crop of growing companies,ones typically with up to $15 million in yearly sales, though the standards differ from bank to bank.
And they’re doing a better job of competing for that business, said Ed Carpenter, chief executive of Irvine-based bank consultancy Carpenter & Co.
“With small businesses, small banks do very well,” he said. “But most of the big banks have small business divisions that serve that market.”
In fact, large banks make a big point of saying they aggressively court small companies.
Just don’t tell that to Ron Hudson, chief executive of Fullerton-based Superior Wall Systems Inc.
Hudson had banked with Union Bank of California for years until the economic downturn a few years ago.
Business was slowing for Superior, even though it had installed dry wall for high-profile clients such as the Newport Beach Marriott and the Queensway Bay in Long Beach. The downturn in office construction in 2000 and 2001 led to a year of losses for Superior.
Union Bank of California wasn’t pleased, Hudson said.
“We had a difficult time meeting their (loan) covenants,” he said. “They eventually put us in their special assets division,and not because we defaulted. We just didn’t meet their criteria as a big bank.”
That’s the kind of story Orange County’s bank startups like to hear when they open their doors.
They say the county’s big banks,such as San Francisco’s Wells Fargo and Charlotte, N.C.’s Bank of America Corp.,don’t have the time to give small companies the personal treatment.
In Superior’s case, that means considering a customer’s long-term history, Hudson said.
It’s why there’s a steady stream of banks that open in OC. Bankers believe there is enough business to pick off from big banks.
For Hudson, a change came through his relationship with OC banker Bala Balkrishna.
When Balkrishna opened Commercial Bank of California in 2003, Hudson said he didn’t hesitate to move his banking business to the startup bank.
“We had an eight-year relationship with Union Bank,” Hudson said. “They’re a large bank without a lot of touch and feel for their client.”
Not true, according to Union Bank.
“It’s a myth that big banks don’t give personalized service to their clients,” said George Ramirez, market president for Union Bank of California’s OC, Los Angeles and Ventura divisions. “We hold our bankers to very high standards. We’re constantly looking at quality assurance.”
Small banks only can handle smaller loans of $1 million dollars or so, Ramirez said. And once those companies require more services, the small bank can’t serve them.
And, in regards to Hudson’s case, Union Bank’s special assets division was meant to help, Ramirez said.
“The special asset division is not the kiss of death,” he said. “Oftentimes when a company is put in a position because they’re having a problem with large clients or external economic factors or something else, it’s special assets that can give them more flexibility. There’s this stigma that you’re a bad customer. It’s just that you may need more flexibility than you get with line bankers.”
In the banking world, small businesses often are the neediest of potential clients. Along with the standard loan, small businesses said they’re looking for a bank that will act as a mentor and be able to hook it up with other advisers, workers and potential customers.
That’s why banks such as Commercial Bank, which has well-known backers such as homebuilding veteran William Lyon and technology pioneer Paul Folino, are able to drum up so many investors. Commercial Bank has grown to more than $100 million in assets since opening.
But big banks have picked up on small banks’ idea of creating a partnership between the borrower and the bank.
Detroit-based Comerica Inc. has a Costa Mesa branch that has a small business group.
“Coming from a small bank, I completely agree” that some big banks don’t offer the same personalized service of small banks, said Ted Hildreth, group vice president at Comerica.
Hildreth oversees the small business division of Comerica in OC. Comerica employs so-called “relationship officers” to act as the front person for many small business accounts.
That model, Hildreth said, allows big banks to co-opt some of the value small banks claim they have.
“I know what the difficulties are for small businesses,” Hildreth said. “When they go to a big bank, they need to go a large committee. Maybe to four or five different branches. Within my group it’s just the relationship officer, myself and one other person.”
Bank of America does something similar. It now has relationship managers for small business accounts where in the past it accounted for small businesses in its consumer division.
“We’re aggressively going after small businesses,” said Kim Burdick, president of Bank of America, Orange County.
The BofA system has worked for Jim McDonald, chief executive of RBF Consulting, an Irvine-based engineering, construction and planning consultancy.
“The bank has been there through our ownership transitions,we’re in a third generation now,” McDonald said. “It’s been a good partner of ours.”
In the end, bankers say that while there is competition between the banks, OC is fertile ground for nabbing bank work from small businesses.
“The truth is there really is enough business for everyone,” said Union Bank’s Ramirez. “It comes down to a personal preference.”
