How incubators help start-ups become bankable

Business incubators provide support for businesses in the earliest stages of their existence. They provide space for ideas and inventions (the beginning of the business lifecycle) and access to working capital through pooled funds provided by banks, micro-credit financiers, venture capitalists, grants, and guaranteed loan programs. Wisconsin’s StartingBlock Madison and the Start Garden in Grand Rapids, Mich., are two incubators that have created an ecosystem conducive to research and development.

Development work at StartingBlock Madison began in 2014 and it launched in 2017 after completing a $10 million funding drive. The organization’s stated goal is to “cultivate entrepreneurs and build innovative companies,” and to create jobs and stimulate the regional economy. In other words, it’s an entrepreneurial hub and an ecosystem, and it’s situated directly across the street from Wisconsin’s capitol.

Chandra Miller Fienen, director of operations and programs, said StartingBlock Madison and its partners have a strong commitment to diversity and inclusion, social justice, and giving back to the community. That community includes social entrepreneurs as well as scalable start-ups. Jorge Gonzalez, executive director of the Start Garden, like Miller Fienen, finds advantage in aggregating the contributions from banks. It is beneficial to the Start Garden to have created “evergreen funding” instead of one-time contributions; it helps assure access to year-after-year funding.   [Continue]

Refined lending approach attuned to business lifecycles

The best companies in your loan portfolio are likely the ones at capacity, providing stable and predictable return on investment. It doesn’t matter if these firms are large economic enterprises or small mom-n-pop shops — sales and earnings variances are low and businesses experience planned growth with long term stability.

One only needs to look at the business lifecycle model and place a finger firmly on the place where business is at market equilibrium (see graph 1). Your best businesses are at the place on the model that creditworthiness risk algorithms are designed for — the prediction of future trajectory based on a substantial record of past performance. But something is missing. This is not the only phase on the business lifecycle model, and certainly it does not take into account businesses that are at the point of invention, innovation or pre-launch development — which includes research and development activities — nor  does it account for business launch, the period of exponential growth on the way to capacity and equilibrium, nor businesses that are ready for expansion. These six “other” phases are real and they deserve bankers’ attention.

The business lifecycle model is a valuable tool because in its totality, it reminds that the phases of a business’ lifecycle can be identified in discrete and knowable pieces, and that the phases have predictable characteristics. The characteristics of each phase are different, and shouldn’t be measured using the same criteria — if for example, we judge a fish by its ability to climb a tree, the fish will fail every time.

Likewise, a banking culture that is driven by a measure of what is not helps no one go forward. Ratios and algorithms tell the banker what is, but do not provide any insight into the questions what else, who else, and so what? The answers to these questions come with evaluation in the presence of the appropriate criteria relevant to the specific phases of lifecycle. This is not a process where one tool fits all uses. Resilience and a commitment to evaluating each business phase as an opportunity is a creative endeavor, one that can help overcome banker burn-out and bring an excitement that is the result of finding and applying fresh perspectives to solutions all along the business lifecycle. It helps bankers and businesses alike to meet each other where they are, on the way to where they need to be. [Continue]

Charter conversions not a concern for Otting

The number of national bank charters in the Midwest has dropped precipitously in the last decade. And while industry contraction is a factor, community bankers also point to savings on examination costs, local decision-making by (and access to) examiners, along with the dilution of national banking powers as reasons they’ve opted to convert to a state bank charter from a national charter.

One place where the decline in national bank charters is astonishing is in Comptroller of the Currency Joseph Otting’s native Iowa, where there are 17 national charters today where there had been 42 a decade ago. The difference is even more pronounced in Nebraska, which currently has 12 nationally chartered institutions, down from 57 a decade ago. [Continue]

Change agent: OCC’s Otting pushes oversight innovation

Joseph Otting, the top regulator for the country’s national banks, still considers himself to be a banker. It’s an admission that explains the consternation voiced by Congressional Democrats and community groups when he was nominated to become the 31st Comptroller of the Currency. To the banking industry, however, Otting’s selection was idiomatic: Who better to understand the bottom-line impact of banking regulation than one who toiled under its weight?

Otting was sworn in as Comptroller on Nov. 27, 2017, and immediately set to work on his priorities: Reforming the Community Reinvestment Act; encouraging bankers to return to small dollar lending; reducing Bank Secrecy Act/Anti-Money Laundering compliance burden; and releasing the special purpose national bank charter for non-depository fintech companies. His priorities are informed by 30 years spent in banking, primarily on the West Coast.

His proposed reforms have captured attention, not all of it positive. The OCC’s plan for a special purpose national bank charter for fintechs, for example, prompted the New York State Department of Financial Services to file a lawsuit, calling the plan “ill-conceived.” The Conference of State Bank Supervisors, which represents regulators responsible for state banks, filed a lawsuit Oct. 25, saying the OCC is overstepping its authority.

On his goals to reform CRA, Otting said he’s been told he “needs his head examined.” Those words came from his friends. [Continue]