A Backyard Bank

Three years ago, hoteliers Mark and Cindi Ladd needed a $1 million loan package to buy the Mayor's Mansion Inn in the historic Fort Wood district. The Nashville-based couple chose a Chattanooga lender, Cornerstone Community Bank. "You have so many questions about business relationships and connections when you come into a town," says Cindi Ladd. "You want somebody in your backyard."

Charles Millirons and Frank Hughes

In economic downturns and upswings, Cornerstone's philosophy makes lending an ear as important as loaning money, says Charles Millirons, Cornerstone's vice president and relationship manager. "Entrepreneurs try to do it all. They need to vent and for you to be a sounding board. You've got to be a guide and a good listener."

The Ladds listened, too.

When Millirons recommended a U.S. Small Business Administration CDC/504 economic development program, they agreed. Federally guaranteed loans have been a critical community-building tool for local banks for many years, says Cornerstone President and CEO Frank Hughes.

But during the recent recession, they became a lifeline. "We're always going to make loans," says Hughes. "The SBA's guarantees enabled us to provide credit to areas that we may have been cautious in, or avoided lending to, during the recession."

Mayor's Mansion owner Cindi Ladd, standing, and daughter Melanie Walker, manager

Small business startups and expansions - Cornerstone's specialty - nearly stopped in 2008, when loan qualifications toughened and investors waited for better times. Beginning in February 2009, the Obama administration began guaranteeing record numbers of SBA loans, totaling to date more than $42 billion.

"We provided working capital for Main Street," says Tennessee District Director Walter Perry. "Even in the downturn our loan numbers were up."

When the federal government guarantees a portion of the loan - typically 50 to 90 percent, says Perry - bank and borrower are encouraged to take greater risks. Knowing the government will cover a portion of their loss in case of a default, banks tend to move more capital into additional loans. Business owners, who are typically required to make lower down payments under guarantee programs, can shift financial resources to items such as payroll or repairs.

Beginning in 2009, Cornerstone - already an SBA preferred lender - pressed hard on the federally guaranteed loan front. Last summer, the bank's efforts were honored when the SBA's Tennessee office named one of the state's smaller banks "Lender of the Year" for Small 7(a) "working capital" loans. From October 2008 through September 2009, Cornerstone closed on seven working capital loans, totaling $1,251,500.

Today, the Mayor's Mansion Inn is full. A calendar of special events such as weddings and anniversary celebrations, as well as a stream of customers generated by the town's rapid Riverfront energy, keeps bookings coming in. "They kick us out of our rooms on weekends," jokes Cindi Ladd.

For the past three years, she has been grateful for the loan's benefits - the lower risk, longer term and reduced down payment. But her bank's open-door policy was more reassuring. "There have been many moments when I've thought 'what have we done?'" Ladd says. "But when I have questions or need advice, they're really good about helping me find my way."

Meanwhile, her guide has spotted signs of a spring economic revival. "Businesses not only went into survival mode but came out the other side - and even grew," says Millirons. "That's been amazing to watch." As the economy heats up, more entrepreneurs are asking for loans again, he adds. "Our doors were open during the recession - if you needed to come in and just talk, we were here to help. A lot of those people are coming back now, ready to make that dream a reality."