“An ounce of prevention is worth a pound of cure.” Next Street CEO Marina Linhart used that age-old adage to introduce our panel at the OFN 2019 Small Business Finance Forum in Chicago, IL on June 19th. On the second day of the convening, Marina led a discussion titled Recession Proof: Leaning in When Others Scale Back. The session focused on how CDFIs can recession proof small business loan portfolios before economic numbers turn negative.
Recently we shared the key things banks can do to succeed in the next recession. CDFIs can take an ounce of prevention today to expand small business lending before and after the next recession.
Marina was joined on stage by Claire Kramer Mills of the Federal Reserve Bank of New York, immito President & CEO Julie Huston, and Michael Rapaport, Senior Vice President of Small Business Lending at Opportunity Fund. Marina asked our panelists to share insight on data tools, lessons from the Great Recession, how lenders can support borrowers, and the ever-changing landscape of lending.
Use data to assess and plan
Claire Kramer Mills highlighted the Fed’s Small Business Credit Survey as a useful device for lenders. “We track business performance indicators like profitability and employment, especially the use of full time versus contract employees,” said Claire. She added that the ability of businesses to take on long term contracts is an important indicator.
She encouraged CDFIs to keep an eye on the percent of discouraged borrowers who believe they are not creditworthy. “It’s important to be thinking now about your strategic partnerships and how you’re going to get inbound calls from these borrowers.”
A lesson from the Great Recession
Michael Rapaport of California-based Opportunity Fund talked about diving into local and regional data. A key lesson learned from the Great Recession is that areas don’t experience recessions at the same times. “If economists are saying there is going to be recession in the U.S. in the next 24 months, I want to know if there is any kind of recession going on where I’m lending right now.”
He later expanded the conversation on data saying that “the combination of analytics and people” is important to how lenders use data. This point is key as more Fintech firms enter and expand the small business lending landscape.
Prepare now to do more for borrowers later
immito President & CEO Julie Huston stressed the importance of doing deals that allow borrowers and lenders to sustain businesses. Lenders need to understand the lending ecosystem and maintain relationships to source solutions for borrowers. Some solutions could include another lender providing a more suitable product.
“In a recession, [sustaining businesses] is exactly what we should be doing,” she said. “We need to be able to refinance or do debt-restructuring because these are still good loans, with jobs and support for their communities, that will pay you back.”
To close out the session, Marina asked for a tweet-length summary on how to recession proof small business loan portfolios. Here’s what our experts offered:
"If you fail to prepare, prepare to fail."Claire Kramer MillsFederal Reserve Bank of New York
"The portfolio you create in a downturn will perform much better than the one in the rearview mirror. Press on the gas!"Julie Hustonimmito
"The best defense is a good offense. So, go on the offense, see what’s happening your markets now, be in front of your borrowers, and that will help you get through."Michael RapaportOpportunity Fund