March 16, 2016
By Bob Coleman
Editor, C-Suite Wednesday
Welcome to Coleman Small Business Lending Podcast with your host, Bob Coleman. Today’s guest is Charles Yorke, President of the Paragon Small Business Capital Group. With 34 years experience in banking and 16 years in SBA lending Yorke is an industry veteran. Prior to working for Paragon, Yorke was Managing Director of the Small Business Capital Group at Cornerstone Bank. He held leadership positions with Haven Trust Bank and Regions Bank. He’s been active in the Dekalb County Chamber of Commerce for several years serving on the Board of Directors and as the 2009 chairman.
Bob Coleman: Charles Yorke, President, Small Business Capital Group, but Charles, I have to ask you what’s a Paragon, explain how this all works to me.
Charles Yorke: Well, Paragon is a 300 plus million dollar asset bank in Memphis, Tennessee and our group, the Small Business Capital Group consists of 15 SBA professionals and we were with a former – another institution and we joined Paragon about a year and a half ago and created the group. We were out of Atlanta and the bank is headquartered in Memphis.
Bob Coleman: What’s your footprint? What geographic area do you cover?
Charles Yorke: We cover Southeast, Midwest to Denver. We have lenders in Atlanta. Most of them are in Atlanta, but we have a lender in St. Louis and in Denver, so we cover from the Southeast over to the Denver market.
Bob Coleman: Very good. Just 7(a) or what other type of lending do you do?
Charles Yorke: Bob, we’ll do 7(a), 504 and a little bit of conventional lending as well.
Bob Coleman: USDA B&I program?
Charles Yorke: We’d like to. We haven’t been doing much of that so far, but it’s been – in the last year and a half it’s been a challenge, but we would certainly like to get in touch with some lenders that have some experience in that.
Bob Coleman: Yeah, as you know or may not know I’m a fan of that program. It’s a little bit different than SBA, but there’s times when it’s a nice fit for one of your borrowers, a little bit higher. I especially like the fact that you can take a hotel owner and he wants to expand to a second or third location and they’re on some Interstate out in the middle of nowhere and bam, you can do B&I very nicely for those people.
Charles Yorke: Very nice.
Bob Coleman: Tell me about your start. I’m always fascinated in how we always end up in our niches. How did you get into the SBA lending world?
Charles Yorke: Well, as a 30-year plus banker I had done a lot of C&I lending and in that arena you always dabble in the SBA group and I guess about 15 years ago I was with a bank here in Atlanta that was predominantly Indian owned and I did a lot of SBA lending through that and, therefore, I started that group and got it going and then started another group, so this is our third go over the last 15 years setting up a group.
Bob Coleman: Very good. And I guess the question is how specifically did you migrate from a C&I conventional lender to an SBA lender? What happened? What was the metamorphosis?
Charles Yorke: It’s the benefit to the consumer, it’s the credit elsewhere, I guess, if you know about the SBA. It gets you the ability to provide customers with longer terms, a lower down payment. It’s a great product. It’s a great benefit to the small business person in this country.
Bob Coleman: Credit box, what is your appetite, what do you like to do, what do you shy away from?
Charles Yorke: We are predominantly a – we get a lot of franchise lending. As I’ve looked at how to differentiate ourselves from other lenders one avenue that – and I guess it came out of that hotel lending background. The franchise business is a specialty, it’s a vertical that a lot of folks weren’t playing in and I feel like if you do it like this you can do it with very low risk and get rewarded for that. So we’ve been playing in – if we have one vertical of specialization it’d be franchise lending. Again most of our – we do shy away from some of the traditional SBA lending. We’re not a big C store or hotel lending, but we do do franchises and a lot of C&I, general manufacturers and C&I and small business lending.
Bob Coleman: Very good. I like to follow certain macro issues. One of the things that’s fascinating to me is the wave of local municipalities enacting the $15 minimum wage and how does that – what are your thoughts about that as a manager of a loan portfolio when you’re sitting down and talking to your franchisees and potential franchisees? What is your attitude about that?
Charles Yorke: Well, as you can imagine that is a very hot button in the franchise industry. It is extremely important and it is something that you got to weigh out and certainly underwrite that as you try to evaluate the prospect of franchise or their ability to grow in that environment.
Bob Coleman: Give us a glimpse into the future. What’s it going to look like three, four years out?
Charles Yorke: I don’t know, you tell me that.
Bob Coleman: No, no, no, I get to ask the questions, not you. Yeah, what I’ve read is there’s going to be more robots, more self-serve. I was in a yogurt shop the other day where I did all the work. I pushed the buttons, I scooped it. There was a nice young lady who took my money. I suspect in the future that person won’t be there either, so people I talked to says there’s going to be – how we interact with our food purchases at that level it could be dramatically different five years from today. Do you buy into that or do you think people are going to be the franchisors and easier it will be to adapt?
Charles Yorke: Well, I think there will be some of that. You’re still going to have to have people. I was just talking to someone about that and personal relationships in the franchise industry is very important. And it’s important for a development officer of a franchise should know that as he’s trying to get a new franchisee that he’s going to put it into somebody’s hands, lenders that will take care of his guys and get out and make sure they get to the finish line, so I think personal relationships are still very important.
Bob Coleman: Other than a franchise lending niche, anything different that you do that other 7(a) or 504 lenders do?
Charles Yorke: From a niche standpoint we do some advisory company loans. We’ve seen that as a good niche to try to develop work in and some entertainment, but not necessarily franchised, but entertainment complexes, family entertainment centers I think is what they call them now.
Bob Coleman: No more movie houses, right?
Charles Yorke: Right, right.
Bob Coleman: Very good, very good. If you look at the numbers – oh, I want to talk about macro numbers, but talk about your shop’s numbers. Where are you going to end up in 2016?
Charles Yorke: We should do about – our budget is 40 something million. We should do over – we hope to do over 50 million in production this year in loans, so that should put us in one of the top hundred lenders in the country.
Bob Coleman: Good for you. I track this data, I know you do also. It looks like small business loan delinquencies, charge-off rates are all time lows. A lot of us – both the borrower and the lender have gotten a lot smarter since our experiences during the Great Recession. Do you see that continuing? Does that concern you? Do you think we may be – I hate to use the word bubble, but where do you view small business Main Street loan performance today?
Charles Yorke: Well, it is at an all time low. I think a lot of it is a function of lessons learned from the Great Recession is that we – I think banks in general do a much better job of underwriting loans and shocking the loans for rate shocks and looking at global cash flow. Prior to the Great Recession I don’t think that – I can tell you the community bankers did not know what global cash flow was.
Bob Coleman: They didn’t care.
Charles Yorke: Yeah, they didn’t care, can this project do it and now it’s a requirement for everybody.
Bob Coleman: Yeah, yeah. I agree with you, very important.
Charles Yorke: I hope, let’s put it this way, the lessons learned from the Great Recession is reflective of the historical low charge-offs and past dues right now. I think it’s a good sign.
Bob Coleman: Charles, I’ve told the story. I was a young banker, on December 19th, 1980, prime rate hit 21.5 percent and my old veteran boss at the time called me over and said kid, always plan on when there are days like this, so I’m not predicting a 21.5 percent prime rate. But what are you doing in managing your portfolio for the inevitable whether it’s – we’re not here to predict, but the inevitable economic turn down of loan portfolio stress. What are you doing for that?
Charles Yorke: We do a stress test with environment rate increases. I think most banks put a 2 percent, a lot of them do, stress about 2 percent. And, you know what, and that’s so relative. You’re looking at 6 to 8 percent. And like you, Bob, I was there, too. I graduated from college in June of ’80 and went to work for a bank, so I got to experience fun times of being a young banker with 21 percent prime rate, it was crazy.
Bob Coleman: Plus, yeah, yeah. We were lending at prime, so we saw some nice 25 percent rates floating around.
Charles Yorke: Exactly.
Bob Coleman: And I think that’s the point that there are cycles, there are peaks and valleys and part of the lending community’s job is to be aware of that and educate the customer. And speaking of that what do you think Main Street and its lenders learned from the Great Recession? You mentioned everyone now wants to know global cash flow. I doubt that you’re underwriting the cash flow of your franchisors, today you are. What else have you learned?
Charles Yorke: Good question. I think we’ve learned, at least I learned, concentrations, don’t be heavily concentrated in one particular area. Atlanta had a lot of community banks and the community banks were new and they were doing a lot of construction lending, Acquisition and Development loans, and residential construction lending and so, therefore, we were particularly hurt. So the banks that had real broadened portfolios seemed to fare better, so I think that was one big lesson is to spread your risk both geographic and by industries.
Bob Coleman: Very good. The oil shock, the falling – the plummeting oil prices affect your footprint at all?
Charles Yorke: Not really. We do some and a little bit of lending in Texas and then obviously we have a lender in Colorado, but for us it just hasn’t – it’s been a nonevent for us, I haven’t seen it.
Bob Coleman: Yeah, the new thing that’s happened since the recession has been the growing proliferation of marketplace lenders, alternative lenders, online lenders, FinTech lenders, whatever you want to call them. How do you perceive them? How do you perceive – well, the first question is how do you perceive their interaction with your existing borrowers? Do you see that as a threat, as an enhancement?
Charles Yorke: Well, I think everybody’s got to learn to play in that area, in that arena. I sat in on a call this morning regarding some marketing ideas to outline marketing because it’s staggering the amount of how the consumer is going to get their information. They’re not reading the newspapers and they’re not getting it – and television’s going down. It’s something like eight hours a day is spent online.
Bob Coleman: Yeah.
Charles Yorke: So you’re going to have to be able to do that, but again I keep coming back to personal relationships are very important, but I think you’re going to have that ability to reach your targeted market through the Internet and other online –
Bob Coleman: Yeah, no, it’s amazing. I’m glad you brought that up because when you experience the change on a daily basis it is incremental and you don’t notice it. I love to show the picture of the Vatican of Pope Benedict when he took the first blessing of the crowd and there was only one iPhone and this was only what, 2008 and then we have Pope Francis who took over. There was not only iPhones, there was iPads and it’s amazing how that technology has transformed everything. You mentioned personal relationships several times. It’s transformed our personal relationships as well as our professional how we do our business, how we interact with our careers.
Charles Yorke: Exactly, it was amazing.
Bob Coleman: I got to ask the question. You could try to punt it back to me, but we are in the middle of a hot and heavy election cycle. You’ve been around a number of years. SBA certainly is a political animal. Do you see SBA being impacted by either a President Trump or a President Clinton, either one of the two frontrunners right now? And, Charles, I will call you a year from now and we’ll compare notes just so you know.
Charles Yorke: Okay, good.
Bob Coleman: This is on the record.
Charles Yorke: Okay, I don’t know. I tell you, I really don’t know what a President Trump would look like in terms of an SBA group. I think a President Clinton would fare very well. I think the SBA has been around since 1953 and has provided a very good service to small business men and women in the United States and I think a President Clinton would do well with that. I don’t know about a President Trump, but I just don’t know enough about what his – obviously, he’s a businessman, you’d think he would do well, but I don’t know. Like other people I can’t nail down anything of what that would look like.
Bob Coleman: Yeah, and you’re right. His platform is solid on that. I don’t view that as a negative. I certainly look back to what happened August of last year when 7(a) hit their budget ceiling of – my numbers may be off a little bit, of $21.5 billion and the conservative Republican controlled Congress – well, I guess, I better be careful now. There’s a lot of people saying they’re not that conservative, but the Republican controlled Congress allowed the $2 billion increase for Main Street.
The way I look at that is – the takeaway for me, Charles, is hey, they understand the staff and the Congress men and women understand this is a zero subsidy program and as long as we do our job right, as long as the lenders are doing the right thing and SBA has now moved into a regulatory process it will have strong bipartisan support. It does have strong bipartisan support, so I am not one of these that are concerned that a Republican administration will try to eliminate it. But that’s my opinion and as I said we’re simply guessing here, but it’s fun to guess.
Charles Yorke: It is, but again we’ve had – the SBA didn’t thrive under Republican presidents in the past, so I think that certainly by a historical standpoint that should not be, in fact, who knows.
Bob Coleman: Yeah, well, there are a lot of great stories, Main Street stories of people who have prospered through the program. Small business created 67 percent of all new jobs in the country, 50 percent of us work for a small business.
Charles Yorke: Exactly, we’re a small business. My bank is a small business, they’re a small business.
Bob Coleman: Yeah, community banks. The majority of small business SBA lenders work for small business.
Charles Yorke: Yes.
Bob Coleman: Going to your bio I see you’re involved with something called the Jerusalem House out of Atlanta. Tell us about that, what is that charity that you’re involved with?
Charles Yorke: It is a non-profit that is here in Atlanta and it provides housing for people affected with HIV and AIDS in the community and it has a – it’s about a $7 million budget. It provides housing for about I think 300, 400 people, 400 units right now and it’s a very good program and provides very good service to the inner city and areas of Atlanta.
Bob Coleman: Good for you. Charles Yorke, President, Small Business Capital Group, a division of Paragon Bank. Charles, I’ve enjoyed the conversation. Thank you for giving us a glimpse into your world.
Charles Yorke: Thanks so much, Bob. I appreciate it.
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