What a Bank Should Be

A Colorado startup reinvents small-business lending with fanatical service

For most of its 30-year history, Anco Engineers Inc.'s banking relationships were about as stable as the "shake tables" it makes to simulate violent earthquakes. The Boulder (Colo.) company first ran through half a dozen big banks, then gave its heart to a gem of a small bank--which was promptly gobbled up in 1996 by the same kind of financial giant. Next, Anco found an investment bank, which soon lost interest when Anco shrunk its business by closing a division.

Finally, in 1998, Anco hooked up with Denver-based Premier Bank USA. From the beginning, it was clear this bank was different. When language barriers held up a letter of credit on a million-dollar sale to Hyundai Heavy Industries in Korea, Premier assigned Korean-speaking staff to contact Hyundai directly. Later, when Anco's co-founder and president, Paul Ibanez, tried to put up his house to guarantee the letter of credit and discovered the property sat in a flood zone, Premier quickly found an insurer and handled all the arrangements. "We had an experience like we had never had before," says Ibanez, who rejected a big bank for the Hyundai project when no one seemed willing to O.K. the deal. "With Premier, Jeffrey just made the decision."

"Jeffrey" is Jeffrey Lee, 47, a CEO with an almost fanatical devotion to customer service and a penchant for defying conventional wisdom. Even as big banks economize by shutting branches and pushing customers into kiosks and online banking, Lee sees value in making life a little easier for the borrower, whether it's to expedite the loan approval process or greet customers at the door and offer them a beverage. The atmosphere at Premier is homey and inviting too, with striking Asian art and a whimsical collection of piggy banks from around the world. Premier's employees speak the customer's language--literally--with staffers conversant in more than a half-dozen tongues, including Malay, Vietnamese, and Spanish. In another nod to its multicultural clientele, there are abacuses at the work tables.

`MIRACLE' WORKER. Some lenders complain that small-biz loans are overly risky and costly to administer. Not Premier: At over 90% of its portfolio, these loans are the cornerstone of the business. With just three branches and 45 employees, Premier was ranked the No. 1 originator of sba-backed loans in Colorado last year, with 124 deals worth $37 million. Only giant Wells Fargo & Co. had more dollar volume, but that was split up among fewer customers at its 125 Colorado branches. Moreover, Premier funded 24 of the 35 sba-backed loans to black entrepreneurs in Colorado in 2000. "This bank has really performed miracles," says Patricia Barela Rivera, the sba's Colorado district director.

Lee's Premier is emblematic of a small but growing class of lenders that have abandoned "banking as usual" to focus obsessively on serving their small-business customers (table). Often, these banks are started by well-connected but frustrated businesspeople who feel that big banks are giving smaller customers short shrift. There's some evidence that's true: A 1997 survey by the Federal Reserve Bank of San Francisco, for example, found that large banks were moving away from making time-consuming small-business loans over $100,000 that couldn't be quickly approved through automated credit-scoring.

Unlike the bigger banks they challenge, the upstarts approach their business with an entrepreneurial flair. Just look at Great Basin Bank of Nevada in Elko, Nev., which features a deposit pickup service and free home-baked cookies on Fridays. Or Tulsa National Bank, which assigns every small business its own personal CFO, actually a senior loan officer, who helps them evaluate mergers and acquisitions.

Why can't other banks--your bank, for instance--be more customer-friendly? Perhaps it has to do with the fact these little banks understand the entrepreneurial challenges their customers face. After all, they're a lot like them. "We think like a small business and act like a small business--a well-run small business," says Lee, who favors the term "financial entrepreneur" over banker.

It hasn't always been easy for Premier. In December, 1995, Taiwanese-born real estate developer Eric Wang launched Premier to serve Denver's Asian community. He invested $1.5 million and raised an additional $700,000 from prominent Asians in the area. By March, 1997, however, the bank was losing money at the rate of $60,000 a month with cumulative losses of $1.1 million. It had just $8 million in assets. Employees were demoralized, and its original CEO had just resigned. Wang turned to Lee, then an executive-vice president at Premier who had impressed Wang with his intellect and sincerity, and with his long experience in international finance and credit analysis. His previous job was cleaning up a California bank's loan portfolio.

FIRMER FOOTING. Lee wasted little time. First, he got permission from Wang to change the bank's mission from a focus on private banking for Asians to a new emphasis on serving small and medium-size businesses, as well as all of Colorado's ethnic communities. And from day one, Lee strove to build a strong corporate culture. "There is a corporate culture in Microsoft, in Boeing, in General Electric," says Lee. "They had to start somewhere."

To put the bank on solid financial footing, Lee focused on the unglamorous specialty of Small Business Administration-backed loans. He realized Premier could resell the government-guaranteed portion of these loans in the secondary market--unlike other small-business loans--and use the proceeds to fund more lending. The tactic proved a bonanza for Premier. Last year, it earned $836,000 on just $56 million in assets. That's a return of 1.86%--compared with an average of 0.86% for other Colorado banks. Return on equity outshone other banks as well--18.35% compared with a statewide average of 10.99%. As for quality, Premier has unusually few problem loans--about 0.05% of the value of its outstanding loans, compared with a Colorado average of about 0.75%, says Veribanc Inc., a bank rating firm in Wakefield, Mass.

In a few years, Lee hopes to be doing $50 million annually in SBA-backed loans in Colorado. Premier is also just one of three Colorado banks to offer letters of credit for export/import financing. Last year, the bank made $10 million in such guarantees.

Lee's intense customer focus means the bank takes great pains to make its loan approval process both fair and efficient. While more than 90% of the major banks use a bloodless computerized scoring system to approve or deny small-business loans, Premier practically ignores such calculations in favor of a personal analysis of borrowers. In part, that's because scoring systems tend to favor active borrowers with long credit records and penalize people who avoid borrowing. "In some of these cultures, the idea is to live on very little, pay the obligations first, and build wealth," says Micheal Paul, Premier's head of SBA-backed lending. "You can't put that in a credit memo."

As for speed, most lenders won't consider funding SBA-backed loans until the applicant completes all the required paperwork. Premier sizes up the borrower's creditworthiness at a preliminary interview before the paperwork is even started, then helps walk the client through the process. The result: Premier can usually fund an SBA loan in three weeks--four when real estate is involved. Many banks take twice that long. If time is particularly short, Lee and Paul will confer immediately and cut it to two weeks.

`COMFORT LEVEL'. But Lee has always known that efficiency isn't enough to make Premier stand out. To win lasting customer loyalty, he needed to build a culture that exalted service. He never lets his staff forget that. At a recent meeting, he told them about an experience with an airline-reservation snafu to drive home the point. At the airport, the gate attendant explained to him "they" had made a mistake. "Let's look at that attitude," Lee told his staff. "It's not `they,' it's `we.' From the customers' eyes, we are all the same. It is so easy to blame other people, but if it's a mistake done by Premier Bank, you have to take the stand of making the apology."

Customers apparently appreciate the attitude. Vinh Grant, controller of Denver-based sporting goods importer Alpine Air, says that even if another bank offered him better terms, he would be reluctant to switch. With Premier, he says, he has a "comfort level" that things are being done right. He gets a full suite of services, too: a $1 million line of credit, accounts receivable financing, letters of credit, and a $200,000 SBA-backed working capital loan. When Grant needed a lien against the company's building removed, Premier released it right away.

Big banks also lust after this market, but some of them have a decidedly different approach to service. "Most of our small-business customers tell us they're time-strapped," says Rebecca Macieira-Kaufmann, vice-president of small-business marketing at Wells Fargo. "They don't want a bank to be their best friend and sit down and chit-chat and have a cup of coffee." Chase Manhattan Corp., another major small-business lender, assigns "trusted advisers" to many small businesses, but that strategy has been hobbled by the high turnover rate among advisers--at times as much as 20% annually.

Still, the big players are making progress on the service front, using tactics that Premier customers might find familiar. Some Wells Fargo offices share space with Starbucks branches or delis. Chase has begun employing greeters at its branches. "We're making sure the customer doesn't have to wait. That's what the customer wants. Not a beverage," says a Chase spokesperson. Of course, that doesn't mean Premier's giant rivals won't catch on someday. "Anybody can learn from other people," concedes Lee. Just don't hold your breath waiting.

By Kimberly Weisul

With Naween Mangi

— With assistance by Naween A Mangi

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