TD Bank’s Head of Small Business Banking on Investment
- Feb 21, 2017
The challenges in the current economic environment have a great impact on small businesses. However, these companies might find it easier to navigate than larger companies. TD Bank’s Head of Small Business Banking Jay DesMarteau discussed how small-business owners, used to doing most of the work for their company, may be holding back growth by not enlisting professional help. DesMarteau also described how small businesses should put together their financial services.
CPE: From your perspective, what are the main challenges small businesses in real estate are facing now?
Jay DesMarteau: Small businesses that operate in the real estate industry currently are contending with increasing values. The prices of potential investment properties are rising, making it a bit more challenging for some small business companies to be able to invest.
Another challenge is with smaller retailers going out of business—or not being able to afford a storefront—due to the increasing competition of ecommerce. Whether you invest in shopping centers or an owner-occupied retail property, ecommerce will continue to add competitive pressures.
CPE: How can these challenges be overcome?
DesMarteau: Small businesses should work with reputable lenders well in advance of any potential purchase or investment to understand the appraisal values and impact on loan-to-value ratios. Business owners also need to be more conservative and hold on to more capital that can be used as equity for each purchase. This cautious outlook may result in passing on opportunities that are overpriced, because overpaying on a commercial real estate property could mean endangering your own business.
CPE: A TD Bank survey from some years ago stated that managing finances was the main reason for stress among small-business owners. Surely, this is very much true today. How do you think the situation can be improved?
DesMarteau: A TD Bank survey in 2015 found that 84 percent of business owners handle financial records, yet in a similar study in 2014, 46 percent of small-business owners named bookkeeping among their most hated tasks in running a firm. Small-business owners often are doing everything from making deals to ordering office supplies, but they can be holding back growth by not enlisting professional help. One way for business owners to find relief is to work with a payroll company, which can provide services such as calculating pay, tax withholdings and generating direct deposit or checks each pay period. Small-business owners can also turn to their banking partners for feedback and insights on how to stay on track for growth and how to build business credit to help secure future funding.
CPE: How do you see the financing sector for small businesses in 2017? Will we see even more caution in real estate lending?
DesMarteau: We have seen continued strengthening of balance sheets and overall credit quality among small businesses over the past couple of years, which is a positive for businesses seeking financing. Rising property values, the continued low rate environment and appraisals at or higher than expected value are all fueling growth in real estate lending on both sides.
CPE: Would you say there is a more conservative underwriting for office and retail properties and looser policies and lower rates for multifamily and industrial (expected to stay strong in 2017 as well)? Why or why not?
DesMarteau: TD Bank’s credit policy has been consistent for many years and, in fact, our lending strategy in investment real estate has been steady since before the Great Recession, through the recession years and into the post-recession with the same policy and underwriting standards. TD Bank continues to supply real estate loans (as low as $25,000) to small businesses for investment properties.
CPE: How do you think a potential increase of interest rates will impact lending for small businesses?
DesMarteau: The Fed has indicated that there will be additional interest rate increases in 2017 and this can be tough for small businesses, which often need to plan for every expense to the dollar. The good news is that interest rates are still historically low and our product, like many others in the industry, is fixed-rate. Small businesses with an adjustable rate or high interest rate loan should refinance now to lock in interest rates before any further increases.
CPE: From your perspective, which do you think will be the main changes and challenges we will see this year, in connection to real estate financing?
DesMarteau: The rising interest rate environment is one of the main challenges and changes facing small businesses this year. As the Fed continues to evaluate rising rates, it will cost more to make real estate acquisitions and businesses may need to adjust their business models or plans.