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A Business Lending Bank with Signature Bank’s Scott Shay

April 17, 2020

Meeting all your financial needs, personal and business.

Scott Shay is the Chairman and Co-Founder of Signature Bank.

Signature Bank is a full-service commercial bank with offices in the five boroughs of New York City, as well as Nassau, Suffolk and Westchester counties in New York and Fairfield County in Connecticut. In 2018, the Bank expanded its footprint on the West Coast with the opening of its first full-service private client banking office in San Francisco.

Signature Bank focuses on serving the financial needs of privately owned businesses, their owners and senior managers – a group of clients who often find themselves underserved by the area’s larger financial institutions.

Learn more about how Signature Bank can be YOUR bank by listening to this episode of The Thoughtful Entrepreneur above and don’t forget to subscribe on   Apple Podcasts – Stitcher – Spotify –Google Play –Castbox – TuneIn – RSS.

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Josh Elledge: Welcome to The Thoughtful Entrepreneur Show. I'm Josh Elledge, Founder and CEO of UpMyInfluence.com. We turn entrepreneurs into media celebrities, grow their authority, and help them build partnerships with top influencers. We believe that every person has a unique message that can positively impact the world. stick around to the end of the show, where I'll reveal how you can be our next guest on one of the fastest growing daily inspiration podcasts on the planet in 15 to 20 minutes. Let's go.

With us right now we've got Scott Shay. Scott, you are the Co-Founder and Chairman of Signature Bank, who has gone on to do some pretty good business in the world, I'd say. Yes, thank you very much. And you are also the author of a couple of books including your newest one In Good Faith: Questioning Religion and Atheism. So, so let's let's start off by talking about how you found a bank because that seems like something that's kind of hard to start.

Yeah, there are many banks that start from scratch, like we started a bank. And, you know, when I look back, I'm still sort of sometimes amazed that we did it. So in the 1990s, I was looking at the banking market in New York and I was thinking, you know, there's just been too much consolidation and people aren't getting serviced. They used to be JP Morgan used to be chased. They're used to manufacturers, Hanover, chemical, Greater New York Savings Bank, Westchester bank, Long Island trust, I could go on and on. And about 20 plus of those banks have become JPMorgan Chase. People were just being forced through acquisition to fewer and fewer banks. And the bad news was is that the big banks were good for the mass market retail because there was a heavy technology spend, and they were good for PepsiCo and IBM and big corporations. But all of these companies in the middle were either getting shunted to the branches or being forced to deal with in a way that they couldn't work. So we started this bank, we're business bank, which is why many people haven't heard of us. We started from scratch, literally. No clients, no depositors, no nothing. We had 42 and a half million dollars in capital, from Bank of boiling. And we proved our hypothesis we went, we broke even after 21 months, which is warp speed for a bank. We went public after 34 months, man. And we still haven't done any acquisitions. Every client who's a member who's part of the bank has come in because they wanted to become a client of the bank. And today we're $50 billion bank. So we're quite proud of that. And the other thing I'm proud of, is that we're actually the only bank in the United States about 4 billion that did not have a down year during the financial crisis. And then is a that's something I'm really really proud of. We knew our clients, we didn't do any of the crazy stuff. I have a saying about banking. The trick is to know you're not a genius. Just avoid the stupid stuff. right and right. problematically many big banks think they're geniuses

haha. being too clever for their own good.

Yep, absolutely.

So Scott, how do you get your first handful of clients? You're like, I've got a great idea. Let's start a bank. Let's go get some clients who will trust us? How do you do that?

It's not so easy. First of all, there's, you've got it. Have some personal relationships. Yeah. And if you don't have some significant personal relationships, it's hard. So the good news is I started with that. And some of the other folks who I co founded the bank with the two other folks who co founded with the bank with also said you know, we need some first clients will Come and trust us. And that was critical.

Yeah, you know. And then and so you get your first handful and then obviously, you know, providing great service is going to be very critical. So hopefully, you know, again, you just continue to network and hopefully they'll lead you to more and more relationships. What is signature do that's unique in the world of business banking.

So here's what we do. And this people underrate, but in fact, it we proved our hypothesis is true. We focus essentially, on companies between 25 and 500 employees. So when mobile banking came out, we were no worries. We only introduced our mobile banking app maybe a year ago, years after everybody else in retail. But when it comes to things that middle market companies do, where market leader, it may not be important to most people, but we're the first people that came out with a remote remotely enabled certified checks. So you Could a lawyer could actually cut a certified cheque from the bank in his or her office. And we came up with various ways to deposit money, where people didn't have to come into the office where we could credit the account. We had a whole bunch of different services and cash management that weren't so complex that, you know, they worked for Verizon, or, you know, IBM or, or FedEx, but they were actually what middle market companies needed. And it's may sound trite, but that's what we do. So 85% of our clients fit that bill. And we were about 85% uninsured accounts. So we have very few retail sort of clients. Yeah. But if you're a big company, you're also probably not going to want a bank signature. So we're a $50 billion bank and our average loan size is less than $6 million. It's got a five handle on it. Which, for a bank, our size is ridiculously low. So we don't trade and securities, we don't do any weak. We don't do anything fancy. We just focus on those small and medium sized businesses, laser like, and when people ask us to do other things,

we say, you know, we're hedge sharks, we know a few things, and we know them really, really well. And we stick to that, you know, so, which, you know, and this comes up quite often is the value of doing one thing exceptionally well as opposed to being a generalist. And certainly, I don't think that your clients mind at all that you don't cater to consumer banking as much. We don't make even

home mortgages. Yeah, of course, we're not good at it,

and refer them and we'll say great, you know, but but on the other hand, if they need cash management in middle market company, where we're going to be Chase, and we're going to be sitting and we're going to be You know, be of a because for our particular focus, that's all we focus on. And if they need something tailored, will tailor it, you're going to be a vein, you say, I got this special thing I need, what you're in the queue is number 297,633. Maybe we'll see in the year 3000.

What Scott, I'm going to ask you this question. And this will serve as kind of a good pivot as we as we move into something that you're fairly known for. And that's, that's kind of ethics and banking. And I'm curious about your perspective of the current state of business financing for businesses on the smaller side, I know one thing that I just get inundated with are alternative lenders. And I mean, it's it's nearly predatory in the marketing that that I see taking place. And I feel very badly because I've talked to people who have taken the day they've been at the apple and all of a sudden now finding themselves With Okay, there's some really nefarious lending practices in the alternative world and what what's your experience with the current state of of business lending?

So there is sort of a major bifurcation. And partially This is due to the fact that banks have to have credit standards because we need to pay back our deposits. And it's partially due to regulators. So, and it's also partially due to what I said before, about, you know, JP Morgan, having, you know, consisting of, in the New York area, perhaps 20, actually, probably more banks, which is there's less choice in banks, I mean, the number of banks has declined a lot. So that person in my TED talk about this. I said, you know, if you were, you know, a, you know, starting or expanding your organic, dry cleaning practice, in the old days, you could have gone to 20 banks, but today you end up just going to JPMorgan Chase because the other banks are part of it. JPMorgan Chase, you may have found one bank willing to, you know, take you on. But no longer is that an option. And the other the so if you don't qualify for banking in a real bank and a bank loan, which usually means that you've already become profitable, or you have some other assets to pledge, then you're in this whole new world of alternative finance, which is problematic. I mean, even the online lenders, you know, I don't want to mention their names, but they're, you know, people know who they are. Oh, yeah.

The rates are really, really high.

Yeah. And I find that some of the smallest entrepreneurs even use their use their credit card. So my my, what I say to people really starting out is figure out what you need for the first three years until you're going to be cashflow positive, and that may be two years but try to get that money up front. If you cash from friends relatives, don't start your business when you don't have enough money to do so. Because that's when people get tempted to take the worst deals because they see if I can only make it another six months I can break through. But in the meantime, they dig themselves into a very, very deep, deep ditch personally, and, and I and I and I caution people not to do that, you know, think twice the money, it's nice to get the check in but then paying 15% interest is not so nice.

Yeah. And I'd say in some cases 15% is being very generous. I've seen right that's very generous. Yeah. which is unfortunate. You know, we, you know, it was great for us. You know, after we had really kind of built out our model. We felt like that was the appropriate time we got SBA financing and wonderful for us. It absolutely you know, we had that product that worked. We tested, we got the market Research and it's like it was that was great timing once we had a proven concept, and sure enough $75,000 in, you know, I'm paying like $800 a month, you know, if I look at the cost, you know the ROI from that of an $800 a month liability, but we like quadrupled our revenues and profits as a result of having access to that money. So in the right case, man is really wonderful for growing businesses.

Well, we are at Signature, parenthetically the second largest SBA pool assembler in the country. So we're active and encouraging that sort of lending. And that should work with you. And that's great SBA. SBA is is really a great alternative to many for many people.

Yeah. So Scott, one thing that you're known well for is and you've made yourself available on quite often in the media is the subject of ethics, which is always in the news, ethics and business ethics and banking. And so it's it's a very, very timely conversation. But I wonder, you know, for the business owner, that is, let's say they're at the, you know, six figures to, you know, early, you know, seven figure territory, what are the considerations that they should take just in terms of always adhering to their own internal code of ethics, or maybe a larger societal code of ethics, when their goal is to grow their business.

So here's the thing, and you know, you want to grow your business, you want to make money, and you also want to sleep at night soundly, and feel like you're, you know, you're authentic, you're a, you know, you're you're making this planet a little better place. And so, here's what I tell people to do. When I call in banking, I call it the banking Golden Rule. It's in the Hebrew Scriptures, Christian scriptures. It's in all sorts of places the way I like it for million investors the way Hello formulated. Don't do onto someone else, what you wouldn't want done unto you. In other words, the rest is commentary just you have to go learn it. So, in other words, put yourself in the other person's shoes. The idea is, are you disclosing enough

that you would feel comfortable with this disclosure?

It's okay to sell. There's not a problem to sell, but you have to also not cover anything up. You have to let the other person know the facts that are necessary. And then let them judge. And if you think about how would you feel if you were doing what you were doing to yourself? That's usually ethically more than enough. I think the golden rule is vastly underrated. vastly underutilized if during the financial crisis, so as I mentioned, we're one of the we're the only bank over 4 billion that didn't have a down year during the financial crisis. Why was that? Because I thought we had a banking Golden Rule, we would never make a loan that we couldn't explain to a depositor or that we wouldn't actually not that we had the money to do it in terms of total personal balance sheet, but that you wouldn't make for yourself if you adjusted the zeros. And so that means you need to be able to explain it to someone else, you need to think that it's not heads, I win tails, you know, the government loses. And, and so it really goes down to that, that that golden rule. The other thing people do in business and unfortunately I've seen this a lot and too much and and very personally, is don't deify yourself. Don't think somebody How you're better than everybody else are you? What happens to you is important, but what happens to other people aren't isn't important. Because again, that's what happened during the financial crisis. There were tons of people who knew they were making dicey mortgages. And they did it anyway. And there were people who I've seen files of people who were taking out seven and 10 first mortgages, saying they were the primary resident in all of those places, and you're not split, those are some of the so called liar's loans. There are other kind of liar's loans for people and just making up their income. Would you really want that done unto you? only answer is no. And if it's not okay to deify yourself and think well it's okay for me to get this benefit, but then other schmuck Aggie No, that's really the key. If they if you can keep if I can encourage your your viewers and listeners to keep one thing in mind it's keep the golden rule in mind if you will. want it done and you don't do it to somebody else?

You know, I think a good exercise maybe in a you know, in someone who's listening to this, your next leadership meeting your next, you know, all hands meeting, it's like, let's evaluate everything that we're doing in business from the lens or the perspective of, you know, does this meet that litmus test of, you know, what if we knew behind the scenes, how this was done, if we knew every aspect is, is this and we were on the other side? Would we feel really great if we were 1,000% transparent with our customers or clients or the public? You know, and if there's, if there's anything where we even have to question that, that deserves to get looked at.

Yeah, I'm a big believer that ethics, too, isn't really taught. It's caught. Lower leaders. Yeah, I mean, I'll remember I remember I was partners with a great leader luminary who was one of the founders of the mortgage market, actually. And he's the only hero in liars poker essentially. We once bought a portfolio or firm at the time bought a portfolio from a bank that was having difficulties. And they needed liquidity. So he bought the portfolio and they knew they were selling cheap. So they said, You know what, if you've got a 25% IRR, which is a pretty good IRR, we should get 25% I think above of any gains above that. We said, okay, fast forward, that bank folded, it was having problems. The bank that bought them was bought by another bank, the bank the bought them was bought by another bank. Yeah. And then one more time, that other bank was bought talk about over consolidation.

In the meantime, we're working away in this portfolio.

Excuse me, and we were doing we did well, we we got like a 35% internal rate of return. And so the time came that the deal was done, and we needed to send the check back. So The accountant tried to contact somebody at the bank and they did. They said we don't know what you're talking about. This is survivor bank. And then they called again they called three times couldn't get anybody to pay attention. And I remember the account saying, Well, you know, we really could just keep this money nobody's gonna even asked and forget about No. And I still remember Lou Ranieri is clear as a bell saying, if you need to get on a plane, go there and find somebody at the bank who will take our check. You know, I'm not gonna i'm not i'm not going to do business that way. And that's what I'm talking about being caught not taught doing the right thing. When nobody's looking, you know, you'll feel a lot better about yourself to

Scott, you know, good example. Like as a parent, I had my son, he guys change back he got an extra dollar. And you know, at first he was like, really excited about that. And I said, Well, you know, you know what you have Do right he goes, I don't get to keep it up like, well, you have to ask yourself is like what is how much does your integrity cost? You know, if they gave, you know, and at some point, you just ask yourself, Is my integrity worth $1? Probably not, you know, and, and it's, it's, you know, I guess we just have to, you know, because we only get one life on this, you know, this go round here. And, and I also believe as a consumer expert and advocate of 13 years with my other company savings Angel and I've done over 2000 media appearances talking about this, today's consumer like it's, I just believe that it's just so much harder in an information age to get away with mistreating somebody, like it's going to come out if not initially, eventually, if not this time, the next time. I just think that there's there's too much transparency, to to to create too many do too many bad things. You have whistle, blow Whereas for example, there will come for it. Sure.

But I mean, you said that you're still supposed to do it whether or not you think that's a risk. But I agree with you. I mean, that's a that's a good thing about our transparent age. There are plenty of bad things about it too. Sure,

for sure. And I apologize. I know we're going just a little bit late. You have just one more, one more minute. Sure. Okay. So your new book In Good Faith. So this is not a book about banking, but this is obviously something that you're very passionate about. And it's questioning religion and atheism, and I think is extremely timely. Because today, you know, having been a man of faith and now you know, I've gone through transitions where I absolutely consider myself a theist, but I think that you know, we look at this sector and I'm sure you know full well about the nuns, right, it's like, well, I'm not an atheist, but, man I don't there's not there's there's something about organized religion that I don't like that aspect. Activate, but I like this. I, I don't want to say there's no God. But so you have this, you know, I think, gosh, who is it? I listened to Andy Stanley will talk about, you know, kind of this Rise of the nuns and and so if you don't mind like share just a little bit about what's going on in our culture, I think particularly within the United States right now just in terms of society and faith.

Sure. Well, first of all, if people go to ScottShay.com, I did a talk at Google. And most of the people that talk were probably not we're almost certainly non believers, right, including what was taped and what wasn't taped. Or recorded, not recorded. People were coming to me with a lot of questions about isn't reason enough. And, you know, do we need God anymore? Isn't God like Santa Claus and the Tooth Fairy? You know, we've outgrown the need for God. And I really think I took people a little bit of back by explaining how reason isn't always reasonable, you know, reason can get you to a whole bunch of bad places and a lot of bad stuff in history has been explained by reason. I mean, one of the leading moral atheist philosopher says that, who is Peter Singer? And he's well known, and he says that, you know, if you've got a disabled child that you should really, society should feel free to euthanize that child. Because it's a burden on society. And in the course of my book, I spoke to a medical director of a major insurance company, who said, you know, Scott, if we just only provided routine care for people, below 30 days of age, and above 75 years, we could save 20% of all healthcare costs, at least, and send everybody to college for free. We wouldn't have to talk about You know, taxes, and that would be great for society. And you know what, what he said, and what Peter Singer said, is actually reasoned and reasonable in the sense that it's based on quantitative calculations. It's based on logic. And it's based upon the sense that, you know, the greatest good for the greatest number. You can't really argue with that. Setting aside a belief that we're all brothers and sisters in some way that we all share a divine spark. Because otherwise, that baby that old person, what would be the reason for keeping them around? And people aren't used to, you know, engaging like them. And the other thing I talked to people about, you know, in terms of organized prayer and II, I'd like to leave you with this. Yeah. Is there organized religion, and you know, people get, too I would say claustrophobic in liturgy and hymnals. And you know, in you know, in going to fix places and saying fix things, but what prayers really about in my mind is so powerful that I think everybody should give it a try, which is if you believe in the Almighty, then you're you're having a dialogue with someone who knows you better than you know yourself. You can hide anything. And so when you have a dialogue in prayer, it's like you're shining the brightest light on yourself, which probably makes most of us cringe, including me, because you can all be doing better people. But it helps us confront what we need to do to make this planet a better place, how we can actually be more mission driven, how we can accomplish what we should be accomplishing, as opposed to just languishing. And that's so powerful and encourage people whether they're involved in organized or any kind of religion to really, I talked about this in the last section of my book. If you have a really good prayer practice, it can transform your life. tremendously and it can make you feel better and it can make you happier because you'll feel like you're doing what you're supposed to be doing, as opposed to doing what you have been doing.

Yeah. Well, Scott Shay, I want to thank you so much for joining us. Your new book is In Good Faith. It's available on Amazon. You can also go to ScottShay.com. That's SHAY.com. And and Scott again, thank you so much again, Chairman, Co-Founder, Signature Bank. Great, great conversation. This is absolutely one of my favorite conversations I've had on the show, and

we'll get you everywhere God Listen,

I you know, I absolutely love your message as well. You know, personally, I can tell you, you know, having had my own struggles with faith and religion, but wanting to hold on to that, like I know, I feel that there's something that's outside of my Myself, I know that there is a there is an almighty, I just you know, I, I really love that personal journey to discovery for me about that relationship with that Almighty. Maybe more directly then through the lens of somebody else, but I think that, that you provide such a such a, that's a I love that argument that that point of view and just the value of faith today. So thank you so much.

Thank you. It's a brilliant pleasure to be here and a pleasure to have this conversation with you, Josh. Awesome,

Scott. Thank you. Bye.

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