Why is Barry Yelton, a vice president of Foothill Capital Corp., driving all over the Southeast to talk to people at community banks?
Mr. Yelton is the marketing guru in the Charlotte, N.C., office of the small-business lending division of Foothill Capital, a Norwest Corp. subsidiary. He is trying to develop partnerships between the asset-based lender and banks.
He wants referrals of potential customers that must pledge their assets- inventory, receivables, plant machinery-to get loans. He wants the loan packages that are too risky, complex, or large for a small, independent bank to handle.
Sure, Mr. Yelton also visits consultants, CPAs, investment bankers, and other asset-based lending companies in his territory. He says that part of his new business comes from other asset-based lenders that find a proposed package too small or complicated for them, or too inconvenient geographically. He also gets business from investment bankers, consultants, and brokers.
But about a quarter of his new business comes from leads from bank officers or credits their banks do not or cannot handle.
What's in it for the community bank?
First of all, Mr. Yelton points out, no banker wants to say "no" to a customer. The banker who can recommend someone like Foothill gets credit for solving the problem without taking undue risk.
Second, the banker knows that the asset-based lender, almost always acting as the senior lender in the relationship, carefully monitors the borrower but also does everything possible to maximize deposit and servicing business for the bank. This is common sense. If Yelton ever stole an account and turned it over to Norwest, he would never see another penny of business in the territory.
Many independent banks have tried to do asset-based lending themselves, for the higher interest rates available, and sadly learned that there is a reason those rates are high: risk. Also, such business takes more work than most commercial bank lending departments can handle.
Risk is related to return. Foothill's small-business lending division and other operations that specialize in high-risk loansfor less than $5 million earn every penny they get.
Sure, there are times when the community bank wants to participate in the loan, over and above remaining the borrower's bank.
But most community banks look at the problems asset-based lenders face- monitoring, deteriorating collateral, tax bankruptcy laws, business slowdowns-and consider themselves lucky to be off the hook.