In this episode, we explore banking strategies for new businesses with Chris Williams, Regional Executive Vice President of Origin Bank. Chris breaks down the essential elements of banking, from understanding the unique needs of businesses to navigating the intricacies of the loan approval process. Discover the various types of loans available, the importance of personal financial statements and guarantees, and the typical timeline and process for securing a bank loan. Tune in for strategies to establish a strong foundation for long-term business success.
Listen to the full episode using the player below, or by visiting one of the links below. If you have any questions or would like to learn more, email us at info@byrdadatto.com.
Transcript
*The below transcript has been edited for readability.
Intro: [00:00:00] Welcome to Legal 123s with ByrdAdatto. Legal issues simplified through real client stories and real-world experiences, creating simplicity in 3, 2, 1.
Brad: Welcome back to Legal 123s with ByrdAdatto. I’m your host, Brad Adatto, with my co-host, Michael Byrd.
Michael: As a business and health care law firm, we represent clients in multiple business sectors, especially health care. This season, we are diving deep into the exhilarating and terrifying process of opening a business. Our theme this season is starting a business.
Brad: Yeah, and Michael, you know, starting a business can be terrifying for some people, but we’re just talking about one season of a business. What are the other seasons that people should know about?
Michael: Yes. You know I love context, Brad. This whole calendar year, through four podcast seasons, we’re going to cover the four seasons of a business. And this season’s the Building Season. We also have the Operating Season, kind of the crisis management [00:01:00] season. The Scaling Season, what are the things you deal with when you’re growing a business. And then the Buying and Selling season, which we will end our year with.
Brad: Well, Michael, I’m really excited today as this week is one of my favorite weeks of the year.
Michael: Is it Mardi Gras already?
Brad: Almost. This Friday I’ll be riding on a float in the Hermes Parade in New Orleans to really kick off that Mardi Gras weekend.
Michael: So, I know this is the question you want me to ask. What’s it like on a float, Brad? I know you want to talk about it.
Brad: Yeah. Okay. I’m glad you asked that. Well, as you know, I have been riding in Mardi Gras parades since I was in sixth grade.
Michael: Is that the legal drinking age in Louisiana?
Brad: No, it’s very close, actually. The legal drinking age is, “can you see above the bar?” In the Mardi Gras crew that I ride in now, I started riding when I was 19 years old so this will be my 33rd consecutive year riding this parade, which is kinda [00:02:00] crazy. And after a while you kind of get used to experiencing it and it just becomes part of the normal thing that you do every day.
Michael: Well the audience, of course, is probably doing the same math as me and trying to figure out how old you are with that. But I didn’t have a calculator handy. It was too high.
Brad: It is a high number.
Michael: Yeah. So, okay. Well, what’s it like up there, Brad, on the float? I may have seen some videos and I’ve got this picture of it being really insane.
Brad: Yeah. You know, people do see these videos and they think the streets are lined with a whole bunch of naked people or people in risqué outfits, but that’s really not the case.
Michael: That’s just you. Okay. Well, I have a “friend” who may have seen some video evidence that says otherwise.
Brad: Well, tell your “friend”, it’s best to understand there’s really two completely different Mardi Gras experiences.
Michael: Drunk or drunker?
Brad: Well, Michael, of course, [00:03:00] everybody knows it’s drunker. There are different Mardi Gras experiences. There are the Uptown experience and then the French Quarter experience.
Michael: Well, what’s the difference?
Brad: All right. Well, Uptown is like the longest block party in the world. There are kids on ladders and in the streets, they’re having fun. Adults are may be having some cold beverages, eating some Popeye’s chicken, and watching the kids have fun. And this block party can span for over five miles straight, and there’s nothing really risqué happening on this block party.
Michael: Is that risqué by New Orleans standards?
Brad: You know what, that’s a fair assessment. Again, I’ve been doing it my whole life, but not nudity, if that helps. Now, however, in the French Quarter, during Mardi Gras it is really not for the faint of heart. By noon on Friday before that Mardi Gras weekend, children and those who don’t want to see humans gone wild should immediately leave the quarter.
Michael: This is probably the… what I’ve got pictured in my brain is the video [00:04:00] of some dude punching a horse in the face and then the cops getting down and destroying that person.
Brad: That may have happened, yes.
Michael: Is that the French Quarter?
Brad: Yeah, that was the French Quarter.
Michael: All right. Well, I don’t know if you ever actually answered my question, my original question. What’s it like on the float since you’ve never invited me?
Brad: Oh, that is such a lie. You’ve actually never said yes. But the best description I’ve actually ever heard came from my brother-in-law, who’s from New York. And his first year of riding, he described being on the float in a night parade as like being a Rockstar for three straight hours.
Michael: Okay. Well, and yes audience, Brad has been gracious enough to invite me, I think almost every year for the last 17 years. So, I’m just giving you a hard time, but why Rockstar?
Brad: You know these night parades, you’re up there on this float and there are lights actually lighting up in your face, and you’re elevated almost a story off the ground. People are packed 15 to 50 [00:05:00] people deep, you know, arm to arm wall, person to person, along the parade route, and they’re just all screaming and pointing at you.
Michael: Oh, man. I just can’t imagine how you can stand all that attention, Brad. You’re so shy. I think they just want you to throw them a bead, maybe. Is that the attention? By the way, what does this have to do with our guest today?
Brad: Well, today’s guest, his profession is akin to the rockstars. I mean, everyone wants them to throw them something.
Michael: Well, once again, I think you’re pulling off a difficult gymnastic move to stretch your opening story into a connection to our guest, but let’s move on. Let’s bring our guest on.
Joining us today for the first time is our friend and banker, Chris, “The Rockstar” Williams. Chris is Regional Executive Vice President of Origins Bank. He has been [00:06:00] in a commercial lender for almost two decades, most of which has focused on professionals like physicians and attorneys. He graduated from Texas Tech with a bachelor’s in business administration finance. He’s been the Co-Chair of The Evening Under the Stars for the benefit of St. Jude’s Children’s Hospital since 2020. And he took a chance on two 13-year-olds trying to start a firm many years ago and has played a major part of what is now ByrdAdatto.
Chris, welcome.
Chris: Thanks for having me.
Brad: Absolutely.
Chris: I’m just curious, have you paid us back yet?
Brad: The check is in the mail? Chris, first, let me hit you with two hot questions. First off, is it true that you give free samples out at the bank? And before you answer that, second, have you ever ridden or attended a Mardi Gras parade?
Chris: Well, yes. [00:07:00]. Now you used to open an account and get a toaster, and now you buy a toaster and get a bank for free. That’s the joke. And to answer your second question, I’m with Michael. I don’t think I’ve ever been invited to Mardi Gras before.
Brad: Check is in the mail… did I already say that?
Michael: Your invitation is with the repayment of the original loan.
Brad: Did you not get that postcard?
Chris: Oh, I must have moved. I can’t remember.
Brad: Alright. Let’s dive in. So, first and foremost, you heard this season we’re talking about the theme of starting a business. Let’s start with learning. I’d love for you to tell us about Origin Bank and your clientele.
Chris: Sure, yeah. Origin Bank is over a hundred-year-old bank. They’re based in Northern Louisiana in a town called Ruston. If you’ve heard of Louisiana Tech University, that’s where it’s at. Truant was originally where it was domiciled. And [00:08:00] they have 65 plus locations from northern Louisiana spreading through East Texas into Dallas-Fort Worth, including Houston and Mississippi. It’s a small regional bank now. They purchased a bank that I was part of called BTH Bank at the end of 2022, and that bank was about 2 billion in assets. So collectively, post-merger, the bank is just over 10 billion in assets today. It’s considered a small regional bank that focuses on primarily commercial small businesses.
Michael: I don’t think you all really need our money back.
Brad: That’s pretty big. From what I heard, they’re doing pretty good.
Michael: Well, talk to us a little bit about what you do and how you help businesses.
Chris: Sure. Just like we helped you and your firm, what was that you mentioned – 20 years ago?
Brad: I feel old.
Chris: We have a lot more gray hair now. [00:09:00] But, you know, it’s really about connecting in the community, providing financial services to small business owners. We focus primarily on commercial, industrial, professional executive type clientele. As you know, we’ve had a concentration in health care professionals and providers over the years. But really just being their bank. There are a lot of banks out there, it’s very commoditized these days, so we try to differentiate ourselves more so around customer service and providing more of a private banking environment to these types of clients.
Michael: So, a new business, they’re going to obviously have their bank accounts. What are some of the other types of things, what types of loans might they need or other types of services might they need?
Chris: Well, we’re industry agnostic, but we do provide services, [00:10:00] your traditional banking services. On the deposit side, you mentioned, we have your classic money markets, checking, CDs. We can FDIC insure a hundred percent of deposits today, which is now an important topic and has become more important since the banking crisis. But in terms of credits, we really are providing credits on the personal side and the business side. We do mortgages, construction financing, second homes. On the business side, we’re doing credit lines, equipment financing, tenant improvements, which we’ve done, I believe, for your office a couple times over.
Brad: Yes, Chris.
Michael: We keep growing.
Brad: Chris got the nickel tour a few minutes ago.
Michael: Oh, okay. Nice.
Chris: Got the whole building here now. Should own it by now, right? But we do pretty much cash flow lending, doing business with people we’ve known, or knows somebody who knows well for many years. And these aren’t [00:11:00] clients that are these walking the bank doors asking for loans, per se. It’s people that we know well in the community that have a successful business or are looking to start a business.
Brad: Yeah. And going back to starting a business, let’s take a step back. When one of your clients walks in that door and says, Chris, I want to start a business, what generally is really the first question you’d ask them?
Chris: Are you crazy?
Brad: Fair and cut audience. Audience members, Chris just walked out, dropped the mic, we don’t know if we’ll see him again.
Michael: That’s the terrifying part that we mentioned. But there’s an exhilarating part too.
Chris: There is, and you guys know it well. It’s definitely a leap of faith and can be a tough deal thing to do. But some of the things we look at, we try to understand what kind of business they’re looking to start. Is this something new to them? What’s their background? Who do they surround [00:12:00] themselves with? And usually bringing in a banker on the front end or near the front end is a good idea. Sometimes they run out in front of the bankers too far, and then the bankers are having to catch up to understand. And so really just understanding what they’re trying to do, how they’re trying to do it, having a plan in place or at least having the banker come in early on and help them be part of putting that plan together and really connecting them with the right people and surrounding them with the right folks to help them execute on that plan.
Michael: And do you need like an actual formal business plan, or is it a little less formal – you’re really looking to see if people have a plan?
Chris: Well, if they’ve never done something before, it’s new, than having a formal business plan is usually the way to go. If they are pursuing a loan through the SBA, for example, they will require a very formalized business plan. If you [00:13:00] have someone that is looking to finance a business, either through an acquisition or startup, or with partnerships, and they’re going through a conventional bank like mine, they may not need as formalized of a business plan, but all of the pieces of that plan will need to be put together. They usually put together a financial forecast. Banking’s pretty simple. Like how much money you want to borrow, what are you going to use it for, and how are you going to pay it back, basically. So, how you’re going to pay it back is usually the hard part.
Michael: But an important element.
Chris: Very important. Yes.
Michael: You can’t get the second loan unless you pay back the first one. So thankfully we did that. And I want to go back, and I want to kind of camp out a little bit more. We touched on this a little bit just now, but really zeroing in on when they should reach out to the banker? When in the process?
Brad: [00:14:00]. Almost like, if you could pick that moment in time.
Chris: You know, I’ve never complained about someone connecting with their banker before they should. It’s better to be better prepared upfront, and what’s funny and what’s good about connecting with your banker earlier on is, we try to do more than just loan money or be an ATM. Having a relationship with your banker is very important, especially if you have your own business or where you’re starting a business. Having that connection with your banker, they know a lot of people that can help along the way, and sometimes they don’t know what they don’t know, especially if they’re starting a new business. So, connecting with your banker early on is, I think, could be very advantageous to them because they can get connected to people that can help them along the way. [00:15:00] Folks that they may not even think about.
Michael: What was it your dad told you, the advice about banker?
Brad: Well, basically know what your banker drinks pretty much.
Michael: I could’ve sworn something like, ‘find your banker and make him your best friend’.
Brad: My dad always said, ‘find a good banker, make them your best friend’. And I’ve added ‘and know what they drink’. So, when someone asks me that question on stage, I actually say, you need to know what type of scotch or whiskey they like, or sometimes both.
Chris: Your dad’s a smart man.
Brad: Well, and I think you raised a good point is, a good banker wants you to succeed for a host of reasons. And by you being able to make those introductions, they might not have a CPA that knows that business or whatever. So that’s a really good point from that perspective. But once, as you start moving with them and they’re like, ‘okay Chris, I’m ready to move forward’, what should they expect, as far as what they need to be able to give to a bank to get approval for a loan.
Chris: [00:16:00]. Well, there’s probably going to be some type of application process depending upon what type of loan you’re looking for and what type of bank you’re going through. But generally speaking, there’s going to be financials on the business, whether there’s one out existing that they’re buying or one that they’re starting. So, there’s going to be historical financial statements, or there’s going to be pro forma financial statements that would be required, in addition to a business plan of some type. And then a lot of times the bank is going to rely on the owners of the business to personally guarantee the loans. So, they’re going to require personal financial statements.
Brad: Those PGs.
Chris: That’s right, which is personal financial statements, tax returns, things like that.
Brad: And for someone who’s never gone to a bank before, why are those things important to a bank?
Chris: Well, the bank wants to be able to know if they’re going to loan money to the business or to an individual, they want to make sure that the [00:17:00] business or the individual has the wherewithal to repay the loan. So, they’re going to look at the primary source of repayment, and then they’re going to look at a secondary source of repayment. And typically, the secondary source of repayment isn’t going to be a liquidation of collateral. It’s typically going to be relying upon the owner or the guarantor and their personal financial wherewithal to be able to backstop a loan in case there’s a stumble or an issue along the way.
Michael: And this is an extension of the when to start questions, but talk a little bit about what the typical process is from beginning to end. If someone’s establishing a relationship with you and as a part of that they’re needing credit, what does that timeline look like?
Brad: From the first whiskey to when you say yes.
Chris: To the last half, to the celebratory happy hour.
I would say, once we get connected with somebody, there’s a mutual connection there. We [00:18:00] understand their type of business. It’s typically not new to us. So, we are already kind of ahead in terms of what we are looking for. But in terms of start to finish, you know, typically a 30-day window is probably good. Banks can move quicker if they need to, it just depends on what type of transaction there is, but I would say just safety conservative-wise, 30 days is good. Kind of like buying a house, you know? Typically, close in 30 days. That should give any bank plenty of time to gather the financial information, review it with the owner.
A lot of times the bank will be your friend in terms of providing questions or comments to the owner that they may need to go back to either the seller with. They may need to go talk to the seller about potentially a seller financing note. They may need to go back to the landlord and make sure there’s not a catch [00:19:00] inside these documents, which you all come involved a lot of times. So that’s some of the things too. So, depending upon the type, the level of the transaction, the longest it could take maybe 60 days, but generally speaking within 30.
Michael: So, I want to talk a little bit, especially for our audience members that haven’t done this before. You talked a little bit earlier about the different offerings, but I want to help educate on the purpose of the different types of loans. So, talk about what a new business, why would they want a line of credit, for example?
Chris: Well, typically the banks are going to want to match sources with uses on any credits. So typically, short-term credits would be revolving lines of credit or advancing lines of credit, typically are used for short-term working capital purposes. So, for example, if there’s a business that’s a service business that has concentrations in accounts receivables, [00:20:00] maybe inventory where they’re having to bridge or match payables to receivables, bridge the timing gaps, then maybe a short-term revolving line of credit would be helpful for them.
Michael: So, audience, as an example for us, when we started our law firm, we were opening the doors and had a window of time before we were going to be collecting money as we were just starting. And so, we had a line of credit to help pay our payroll for the short window when we got started.
So, let’s talk you talked about an equipment loan. Talk about kind of what that looks like, what the typical types of equipment or purpose of the equipment is, and that type of loan.
Chris: So, a lot of times, if with an SBA loan, they’ll wrap in the equipment. Let’s just, for example, use a dentist practice that’s starting. They might get a loan to start the practice [00:21:00] which is inclusive of the equipment, inclusive of the working capital. If you go through a commercial bank like mine, they’ll likely want to break those out. It’s kind of like financing your refrigerator with your mortgage. You probably don’t want to do that, right? So, what we do is we say, okay, let’s look at the appreciable value of the assets being financed. Typically equipment, depending on what type of equipment, generally speaking is five to seven year financing. Revolving line of credit for short-term working capital is 12 to 24 month financing. And then real estate obviously is longer than that.
Michael: Okay. And the final one, I know there are so many others I can even already think of, but one I want to ask about is you mentioned finish out. So, this is, you lease some space and there’s work to be done to finish out the space. Talk a little bit about that loan and what that looks like.
Chris: Yeah. So [00:22:00] a lot of people that lease space have the opportunity to finish out the space, either where the landlord will finish it out themselves, or they have the option to hire their own contractor to finish out the space. So, banks will finance that for you. And a lot of times the landlord will provide a tenant improvement allowance at the end of the project once there’s a certificate of occupancy. You could go to your bank, you could get a loan, they’re going to ask you to provide obviously the address of the lease, a copy of the lease agreement. And then they’ll want to see a construction budget that basically details out what that’s going to look like. And then you could potentially go and finance upwards to a hundred percent of the cost of the improvements.
And those are typically set up for 6 to 12 months. It’s like a credit card. They draw it down as they need it. And as improvements are being made, typically there’s inspections along the way to make sure it’s being done correctly. You’re paying [00:23:00] interest only typically monthly along the way. And then once the improvements are complete and then you’re able to move into the space, the bank will naturally convert the loan from interest only to principal and interest. And it just turns into a term credit typically in the 3 to 7 year range.
Michael: So if someone, random business out there had a partner named Brad and they tried to slip a private plane into that line item, could that get past the bank?
Brad: Is that construction?
Chris: If it was heading to New Orleans, maybe.
Brad: Okay. Well, and this really kind of brings us to one of the last questions, when we’re dealing with these professionals and then some professional business comes in and they want to borrow money, and you’re looking at their finances or just anything in general, besides their partner being named Michael Byrd, what would be the biggest positive or negative that would be towards that approval process they go through?
Chris: Well, in terms of [00:24:00] a secondary source of repayment, if you’re speaking of the ownership wherewith all, or the guarantor’s financial statement for example, some of the things that the bankers are going to look at is, how much contingent liability do the owners have? Can they understand that? How much liquidity free, unencumbered liquidity are they going to have so that if there were issues along the way, they know that they have the ability to get through that. And then something that’s fairly newer in the banking environment is, they’re going to want a deposit relationship that’s meaningful moving forward. There’s not going to be a lot of banks out there that are going to extend credit without having corresponding deposits. So that’s probably the biggest thing of all, right now.
Brad: Explain to the audience why those deposits are important to a bank.
Chris: Well, that’s how banks operate. They take people’s deposits and then they loan those deposits out, and they have to keep certain loan to [00:25:00] deposit ratios. And since the banking crisis in California, the bank’s deposit portfolios have become very vulnerable. Banks are having to pay more interest to consumers on their commercial businesses, on their deposits than they ever have before in a long time, which is squeezing banks’ net interest margins, which is why all the bank’s stocks are down today. Actually, they’re up today, surprisingly. But that’s why there’s been a big focus on deposits, more so on credits right now, because they need those deposits in order to meet their loan deposit ratios in order to continue to loan money.
Brad: Got it.
Michael: Okay. That’s very helpful, and we’re out of time.
Brad: But I thought I heard he can approve us for a plane, right? Did you hear that?
Michael: I inferred that we’re getting a new plane ride.
Brad: Yes. That’s what I think I did.
Michael: Yes. And we’re going to take Chris with us.
Brad: [00:26:00] Hey, I guess that’s all I needed to hear.
Michael: To Mardi Gras.
Brad: What bourbon am I bringing?
Chris: Blanton’s.
Brad: Yes. I knew you were going to say that.
Michael: Well, Chris, thank you so much for joining us today. It was very helpful. What we’ll do is we will say goodbye, then we’ll go into a commercial break. And on the other side have a little legal insight and wrap this up.
Intro: Many business owners use legal counsel as a last resort, rather than as a proactive tool that can further their success. Why? For most, it’s the fear of unknown legal costs. ByrdAdatto’s Access+ program makes it possible for you to get the ongoing legal assistance you need for one predictable monthly fee, that gives you unlimited phone and email access to the legal team so you can receive feedback on legal concerns as they arise. Access+, a smarter, simpler way to access legal services. Find out more, visit www.byrdadatto.com today.
Brad: Welcome back to Legal123s with ByrdAdatto. I’m your host, Brad Adatto, still here with my co-host, [00:27:00] Michael Byrd. Now Michael, as we’ve talked about this season, our theme is starting a business and we are really camping out this season on all the things you need to know. We had a great leader come in and talk about the banking world, what is really needed to go get that commercial loan. And he was talking about the processes that you’ll have to go through. One of the things he was talking about, I’m going to call the administrative side, but it really is about having your house in order when you go see a banker. He talked about certain situations when you might need a business plan and when he sees your finances. In other circumstances, if there’s multiple owners, they’re going to want to review your governing documents. So it could be your company agreement, it could be your written consents. And they may even say, “hey, we want additional things in this document for our protection as a bank.” We’ve definitely seen that. Or we want to have a governing consent that comes back and says that this person has authority to enter these agreements. There is an element to that in any commercial bank. But there’s [00:28:00] also another element to look at, and that is they’re going to give you agreements.
Michael: Yeah. And you’re entering into a formal relationship with the bank. Like any deal, there’s risk and the bank is going to want to be protected from risk and they’re going to give you legal documents to sign. So our clients ask us, what is the best way to minimize risk? And of course, the easy answer is pay your money back if you borrow.
Brad: Well, that’s a good one.
Michael: Yes, because the bank wants to get paid back. You won’t want to sign the paperwork if you’re not willing to do that, and understand that there’s going to be a lot of protections. That said, there are some things to think about. One is the personal guarantees that were mentioned. So, if the business doesn’t do as planned, and now you’ve signed a personal guarantee, what should you expect on that front? First is, generally speaking, banks ask for personal guarantees for the owners [00:29:00] that own more than 20% interest. So, you know, if you’re a minority owner and you’re being asked to sign a personal guarantee, you definitely want to learn more and talk about that and potentially negotiate that. And then there’s some certain clauses that are in the bank documents, there are covenants that you would potentially want to negotiate to make sure that you can’t have your note called back even when you are paying it.
Brad: Yeah. There are definitely areas, audience members, understand there are ways to negotiate these things. Although they feel like formal documents should take the time, hire an attorney to understand what to look for.
But Michael, we’re almost out of time. What are your final thoughts today?
Michael: Well, Brad, you aren’t going to get to borrow money to go on this Mardi Gras trip, but I’m sure you’ll be a Rockstar.
Brad: Thank you, sir. So audience members, guess what? Next Wednesday, we’ll continue this journey of learning how to start a business. We have commercial real estate broker Steven Holly joining us. Thanks again for joining us today. And remember, if you like this episode, please subscribe, make sure to give us a five-star rating and share with your friends.
Michael: You can also sign up for the ByrdAdatto’s newsletter by going to our website at www.byrdadatto.com.
Outro: ByrdAdatto is providing this podcast as a public service. This podcast is for educational purposes only. This podcast does not constitute legal advice, nor does it establish an attorney-client relationship. Reference to any specific product or entity does not constitute an endorsement or recommendation by ByrdAdatto. The views expressed by guests are their own, and their appearance on the program does not imply an endorsement of them or any entity they represent. Please consult with an attorney on your legal issues.
