Mission-Based Lending | By Patrick J. MacKrell
Almost six decades ago, New York’s banks recognized the need for an additional resource for our small businesses and created New York Business Development Corporation (NYBDC). From the beginning, NYBDC has been a bank-crafted and funded alternative when conventional bank financing is not available.
Nearly 125 banks hold membership in NYBDC and provide the leveraged capital necessary to support a more expansive approach to credit. The NYBDC alternative is not separate or independent of its member banks, but instead represents members’ commitment to serve small business – both directly through their own product offerings and indirectly through their support of NYBDC.
NYBDC is unlike any other organization in that it represents the collaboration of virtually every bank doing business in New York state to facilitate loans to small businesses that do not qualify for conventional financing. This collaboration highlights the commitment of New York’s banks to small business and recognizes that “sharing risk” among the member banks of NYBDC allows for a more expansive appetite for risk and, therefore, a greater likelihood that the requests by creditworthy businesses will be approved.
In uncertain economic times, such as those experienced in late 2008 and the years that followed, NYBDC has a well-established history of increasing its small business lending to address gaps in the marketplace – all facilitated by the support of New York banks. The member banks that make up NYBDC recognize the value of the shared risk collaboration and consistently support NYBDC with the lines of credit necessary to provide loans to creditworthy small businesses.
Most, if not all, member banks have robust “second look” programs that are tasked with carefully reviewing loans that would otherwise be declined. While these programs capture some opportunities, there are cases where a declination is nonetheless determined to be appropriate. NYBDC provides member banks with another opportunity to serve their customers through a referral to NYBDC. These referrals allow NYBDC to do precisely what its members intended it to do – serve as an alternate resource for small business loans where a conventional solution is not available.
NYBDC routinely makes loans to start-up and early stage companies, challenging industries, and in cases where repayment is based on projections. It combines traditional underwriting with careful structure and maximum use of technical assistance providers and loss mitigation measures, such as U.S. Small Business Administration loan guarantees. It works closely with the small business throughout the term of the loan, providing the flexibility that is often necessary to meet the challenges and uncertainties attendant to owning a small business.
As a “mission-based” or “alternate” lender, NYBDC looks beyond simply generating shareholder value and return on investment to focus on the broader mission of promoting prosperity and opportunity. Although its operations, in many respects, mirror the commercial lending function of a traditional bank, it is focused on providing leveraged capital to small businesses that are unable to obtain loans through traditional means.
Notwithstanding NYBDC’s focus on providing alternate lending solutions, it cannot accomplish its mission without support from lending and community partners. NYBDC relies on referrals from partners. The wide range of financing programs and loans funds it administers cannot be deployed without the assistance of lending partners. The organization’s work begins when a lender realizes that it will not be able to provide a loan, but engages with the business to identify alternate lending opportunities available to the business. Lenders that refer businesses to NYBDC may not be able to make the loan, but they can certainly facilitate the loan by making the referral and in the process develop a relationship across other business lines.
The process starts with a referral of your customer to NYBDC. The referral can take many forms, ranging from the direct introduction of the business to a loan officer, to simply providing contact information to the business and advising that NYBDC is available to consider the request. Businesses can access this program via NYBDC’s website, www.nybdc.com, email, firstname.lastname@example.org, or telephone, (800) 923-2504.
Patrick MacKrell is president and CEO of the New York Business Development Corporation.