Business Bank of Nevada, fresh off its sale to City National Corp., is trying a new tactic it hopes will set it apart from other lenders in Las Vegas — and could be carried back to its parent's home market: a small-business loan that lets borrowers use equity in their homes as collateral.
"There are a large number of smaller banks in Las Vegas, and more forming, and so it is extremely competitive for the small-business market segment," said Mark Phillips, chief credit officer of the $508 million-asset Business Bank. "This gives us more arrows in our quiver and the more options you can give" customers, "the more competitive you can be."
The offering is unusual, but observers said they would not be surprised if others followed suit.
Business Bank of Nevada said that business owners can pledge primary residences as collateral for commercial loans up to $250,000.
"Occasionally we can't give business owners loans when they apply, because they don't have enough cash flow or enough cushion, so this gives them that little extra lift they need to get the amount of credit they want," Mr. Phillips said. "In our rapidly growing market, home values have accelerated significantly, and this allows them the ability to leverage off the increased equity in their homes."
Most banks generally require small-business owners to sign personal guarantees when they take out business loans, which indirectly results in their having to back that up with personal assets — most notably, their homes — should their company ever default on the loans.
But actually structuring a business loan to let customers use the equity in their homes as collateral is uncommon, said Brett Rabatin, an analyst at First Horizon National Corp.'s FTN Midwest Securities Research Corp. in Nashville.
"A little twist like this can certainly help a bank position itself," Mr. Rabatin said. Business Bank "may have an early lead, but I think we'll see other banks soon doing that as well."
Las Vegas remains one of the nation's fastest-growing metropolitan markets and, for banks, one of the most competitive. Large banking companies such as Wells Fargo & Co. and Bank of America Corp. are well established there, and nearly a dozen banks catering largely to commercial customers have opened there in the last decade.
If Business Bank fares well with the new product, which it began offering last week, the $15 billion-asset City National may roll it out in its California market, Mr. Phillips said. Business Bank is a wholly owned subsidiary of the Los Angeles company, but by April, City National plans to merge it into its flagship City National Bank. It bought the Nevada bank on March 1 for $167 million.
Lana Chan, an analyst at Bank of Montreal's BMO Capital Markets in New York, said Business Bank is smart to try out the idea first. "Nevada is definitely a good testing ground — it's a relatively small piece of their banking franchise right now."
With the new offering, Business Bank said it will shorten reviews of property valuations and title insurance on the homes used as collateral.
Streamlining the process for small loans also frees up commercial loan officers to focus more on larger loans, Mr. Phillips said.
The product is an enhancement of the "accelerated loan" the bank developed four years ago for small businesses that need working capital fast, Mr. Phillips said. Applicants can provide minimal financial data and be eligible for the loan, which has a four-day turnaround. A conventional business loan generally takes up to two weeks to process.
Business Bank last year increased the maximum amount from $150,000 to $250,000 and has made about 700 of the loans, totaling about $9 million. Though that is a small piece of the bank's overall loan portfolio, Mr. Phillips said the product helps attract emerging businesses.
"This is a fantastic feeder network for smaller businesses who are going to grow into needing additional banking products and services down the road," he said.
