From the March 1998 issue of Entrepreneur

A recent study by two university professors found that small start-up banks are more likely to lend to small firms than are older banks of similar size.

According to Lawrence Goldberg of the University of Miami and Lawrence White of New York University in New York City, from 1987 to 1994, small-business loans accounted for 13 percent to 21 percent of the total assets of three-year-old banks and only 8 percent to 10 percent of the total assets of similarly sized older institutions.

Why do small businesses attract small banks? "[In a small bank,] you don't have the variety of people you may have at a larger bank, so you have to be much more entrepreneurial," says Rusty Cloutier, president of MidSouth National Bank in Lafayette, Louisiana. MidSouth has $220 million in assets; about 98 percent of its commercial loan portfolio is with small firms.

"I'm rooting for [small businesses]. It's important to the community and me that they be successful," says Gordon Gentry Jr., CEO of Harbor Bank in Newport News, Virginia. The bank has slightly more than $50 million in assets, and 60 percent to 70 percent of its commercial loans are made to small firms.

Familiarity with the company and the market it serves is another major reason small banks don't find lending to entrepreneurial firms risky, says Gentry. "We either know the people [seeking the loan] or the business, and we know exactly what opportunities are in the community."

But knowing the company representatives doesn't necessarily mean the small businesses are assured of getting their loans. These bankers still look for strong management teams and owners dedicated to spending whatever time it takes to make the business a success, even if that means working 70 to 80 hours a week, says Cloutier.

The bottom line is that these small banks and businesses both have a vested interest in making sure the community they serve and live in is viable.

High Interest

International CDs may yield big returns.

Investors looking for certificates of deposit with the potential to pay double-digit interest now have another option to consider, thanks to Treasury Bank in Washington, DC. Through its affiliate Treasury World Wide, a financial services provider in Washington, DC, investors can purchase CDs in more than 30 foreign currencies for terms ranging from 30 days to one year.

But this is not risk-free investing, cautions Edward Vazquez, manager of Treasury World Wide. You are converting your stable U.S. dollars into less stable foreign denominations. Any strengthening of the U.S. dollar could reduce the value of your investment; conversely, any downward slide would reward you handsomely.

Vazquez says the ideal investors are those with excess income, who can ride out currency fluctuations. For more information, contact Treasury World Wide at (888) 456-2323.

Fast Track

Name and age: John Schaeffer, 48
Company name and description: Real Goods Trading Corp. sells a broad range of energy and conservation products through its catalogs and retail stores.
Based: Ukiah, California
Founded: 1986
Fiscal year 1997 sales: $18.4 million
Number of employees: 100+
The road less traveled: Schaeffer tends to walk paths where no others have tread. In 1991, Real Goods became the first U.S. retail company to successfully launch a multistate direct public offering. The result: $1 million in stocks sold primarily to small investors. In 1996, the company created the first online bulletin board where people could buy and sell its stock. And in 1997, Schaeffer got the Securities and Exchange Commission's nod to conduct the first direct public offering wherein investors could purchase stock online with credit cards.
On public offerings: Going through an investment banker could have cost the company up to 15 percent of its proceeds. Plus, the company's customers are fiercely independent and didn't want to deal with large institutions.

Contact Sources

Harbor Bank, 11001 Warwick Blvd., Newport News, VA 23601, (757) 591-7000

MidSouth National Bank, P.O. Box 3745, Lafayette, LA 70502, (318) 237-8343

Real Goods Trading Corp., 555 Leslie St., Ukiah, CA 95482, (800) 762-7325

Treasury World Wide, 1155 15th St. N.W., #300, Washington, DC 20005