Resort Bankers Adapt to Small-Business Hell

Banker W. Thomas Mears' market might seem like any banker's nightmare- hotels, restaurants, and shops in Ocean City, Md., that do almost all their business during just three months of the year.

Ocean City, whose site is an Atlantic Ocean barrier island, becomes the second-largest city in Maryland every summer. But during the rest of the year, the beach resort deflates to a mere 5,000 permanent residents.

"We have 100 days to make our living," said Mr. Mears, vice president and regional officer for Peninsula Bank, a Mercantile Bankshares subsidiary in Ocean City, Md.

Though it is stressful, a condensed business season can be very profitable for bankers with a strong dose of scouting, sales, and credit risk management skills, Mr. Mears said.

"You're always taught that bankers don't lend to hotels, restaurants, bars, or gas stations," he said, "but that's not true here. You have to look at each deal to see whether it makes sense."

The experiences of beach bankers offer a lesson to their colleagues in other competitive markets-smart bankers really can make money lending to small businesses known for their high failure rates.

For the bankers of Ocean City, it pays to get an early start. In the spring, they prospect for customers; in the summer, they serve customer needs; and in the fall, they collect their payments.

So in mid-February and early March, when the empty Ferris wheel sways with the sea breeze, bankers cruise the boardwalk looking for new business.

But between Memorial Day and Labor Day, when the boardwalk is crowded with strolling sunbathers, bankers are in their offices tending to customers' last-minute needs.

"You have to be there long before Memorial Day," said Reese Cropper, president of $241 million-asset Calvin B. Taylor Banking Co., which has headquarters in Berlin, Md., and two branches in Ocean City.

Mr. Cropper said his staff searches the lists of building permits and new business licenses to call on business owners before their season begins.

Bankers have a narrow time frame, between Presidents Day, when spring cleaning starts, and Memorial Day, when summer officially begins, to pitch their products to the city's entrepreneurs.

After Memorial Day, small-business owners are too busy trying to attract good employees and counting their money to reconsider where they put it.

"In the summer they may want to talk to you about a follow-up appointment, but they don't want to see you," said William Sturgis, executive vice president at Peninsula Bank. Mr. Sturgis was Mr. Mears' predecessor as lending officer for Ocean City.

Businesses in Ocean City often have a greater need for seasonal lines of credit because suppliers are sometimes wary of extending trade credit to beach businesses.

Ocean City bankers say they scrutinize the business plans, look at the net worth of the principal business owners, and ask for detailed financial projections before making a loan.

"If somebody has a start-up and no capital, they have a problem," Mr. Cropper said. Other bankers said they offer loans guaranteed by the Small Business Administration to start-ups.

Bankers also look at a business' location because prominent sites are more likely to attract customers. And they watch for buildups in the number of T-shirt shops or beach supply stores; increasing competition can force weaker businesses to close.

The resort town is a fairly mature market. Instead of lending for new buildings, bankers usually finance renovations. But they said competition is keen to extend credit to small-business owners who sell everything from caramel-covered popcorn to hermit crabs in wire mesh cages.

"It's not an underserved market in any way," said Martin Neat, president and chief executive of First Shore Federal Savings Bank, Salisbury, Md., which offers mortgages but no business loans in Ocean City.

Peninsula Bank, NationsBank, First National Bank of Maryland, Wilmington Trust Co., and the community banks Calvin B. Taylor and Bank of Ocean City are active in the town.

"The banks that are in Ocean City are making a concentrated effort to lend money," said Peninsula Bank's Mr. Sturgis, "but not everybody has chosen to be in the market."

Bankers said small-business lending in Ocean City requires stamina and a specialized expertise in evaluating seasonal businesses' balance sheets.

The only thing they can't factor in to their lending decisions is the weather, which can ruin a summer. Even a hard rain on a leaky building can ruin a store's inventory.

Cool, cloudy weather keeps tourists away from the shore. But clear, moderate weather can dampen sales as well by keeping visitors on the beach and away from the stores during the day. Most of the time, however, said Mr. Cropper, the weather has only a moderate impact on business.

"If people are at the beach they find a way to spend money," he said.

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