Fox Chase Bank is preparing to roll out an unconventional community banking web tool that helps small business owners better understand what their companies are worth.
The investment is meant to help drive more commercial lending at the Hatboro, Pa. bank by offering something small businesses might want: their potential going rates.
Unlike public companies, private companies are challenged to get a relatively quick and cheap valuation so the owner can, among other things, decide whether to sell the business or make an initial public offering. Indeed, the majority of business valuation reports cost between $3,000 and $35,000, depending on the time taken and the amount of information included, according to global research firm IBISWorld.
"It's kind of an expensive look-see if you don't have some way to value the proxy," says Tom Petro, president and chief executive officer at Fox Chase Bank.
The modeling tool is meant to serve as a Zillow.com for private companies, which can complete the data entry for the estimate within an hour. Fox Chase Bank plans to test various pricing models and views the data insight it gains as a benefit since it performs a sizable amount of work in financing acquisitions.
BizEquity provides the valuation model tool. It requires at least one year's worth of financial data with the aim of collecting three years. That includes the industry the company is in, its annual income and its accounts receivable. All told, BizEquity looks at 63 metrics — quantitative and qualitative. It also considers the reason for running a valuation — including seeking a small business loan or looking to buy a business.
Fox Chase Bank intends it to be used by entrepreneurs who will run what-if models before they pull the trigger on a business decision, such as what the financial results of a merged entity could look like. Customers will have the advantage over non-customers by having their data stored so as to avoid reentering their data at a later date.
"Whether net worth is increasing or decreasing, BizEquity will answer the question and answer it pretty well," says Petro.
Eventually, Petro said BizEquity could help the bank feel more comfortable financing so-called airball deals, which are asset-based loans where the line of credit exceeds the asset.
Alternative lending, payments via smartphones, and cash flow projections have been among the recent innovations geared toward commercial banking customers. The estimate feature offers one of the most recent examples of a customer category gaining ever-more digital tools.
"We are trying to help the business owner and the banker," says Michael Carter, president and chief executive at BizEquity. "You don't have to be an accountant to know what the business is worth."
To date, BizEquity has forged 25 private-labeled partnerships, including serving as a lead generation tool for a bank for about the past six months.
Metro Bank in Pennsylvania offers the BizEquity tool to draw people into its branches. To get their estimates, entrepreneurs must come into the branch and meet with a loan officer after they input their data online. They do not have to pay, however.
"What first attracted us to BizEquity is the ability to differentiate ourselves among commercial customers," says Perc Moser, chief operating officer at Metro Bank.
Moser says between 25 and 50 individuals have completed the valuation to receive 20-page-plus reports.
"If we can get a new customer every month and we can get one or two additional services from a client every month, it more than pays for itself," Moser says.