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Synovus Puts Analytics at Core of Small-Business Loan Push

Hoping to expand its lending to small businesses, Synovus Financial Corp. is introducing companywide a
service that lets it examine the quality of its customers’ accounts receivable as collateral.
Banks already offer similar services to large corporate customers, but the Columbus, Ga., bank holding
company said that the sheer number of small businesses, and the value of their receivables, has until
now made this kind of arrangement impractical for this market segment.
Synovus has reworked its trade finance lending procedures to take advantage of data generated by
several small-business accounting applications and evaluated by FTrans Corp., an Atlanta company that
operates a collateral management system.

“We have a difficult time lending to small businesses using working capital assets like receivables,” said
Mark Holladay, Synovus’ chief credit officer.

Banks can extend such credit to big clients, but he said that most financial companies prefer to offer
credit cards or require collateral other than receivables of unknown quality in lending to smaller
customers. “Most banks can’t efficiently monitor those receivables in an effective manner,” he said.
The $34.2 billion-asset Synovus has been testing for more than a year the FTrans Collateral
Management Platform at its flagship bank, Columbus Bank and Trust Co., and at three other banking
units. Now it has begun to roll it out to the rest of its 32 retail banks.

“We’ve got a lot of opportunity out there right now,” Mr. Holladay said in an interview. “We’re going to
integrate this into all our banks.”

Synovus has $70 million of credit outstanding to 134 clients in short-term loans ranging from $50,000 to
$4 million using the FTrans service, Mr. Holladay said, and the company has done $500 million to $600
million of fundings through the service overall.

Mr. Holladay acknowledged the irony of expanding in trade finance, which has generally been seen as
particularly risky, in the middle of a credit crunch.

“We’re not looking to make a lot of real estate loans, but we’re always looking for ways to serve our
customers,” he said.

John Hayes, FTrans’ chief executive, said his company’s model is comparable to those of credit card
networks, enabling sellers to obtain bank financing on the strength of their customers’ ability to pay.
But in the business-to-business market, the difficulty until now has been monitoring the value of the
sellers’ receivables, he said.

Synovus can assess the creditworthiness of borrowers through conventional underwriting or through
credit-scoring services, he said. It uses FTrans to evaluate borrowers’ customers, using proprietary
systems from companies such as CIT Group Inc. in New York or the Dutch credit monitor Atradius NV, so
that both sides of a transaction are underwritten from a credit perspective.

Once Synovus signs up a small business for the service, it enrolls the customer with FTrans, Mr. Holladay
said.

FTrans says the cost to the borrower typically runs 1% to 3%, including the transaction cost and interest,
depending on the size of the company but subject to negotiation.

Mr. Hayes said that small-business customers using standard accounting packages — such as
QuickBooks, Peachtree Software (a business that Mr. Hayes co-founded in 1976), or Microsoft Office
Accounting — can install a small FTrans software application that automatically posts invoices to the
FTrans online service as the seller issues them. Sellers that use other billing systems can post their
invoices manually on the Internet, he said.

Mr. Holladay said Synovus can typically credit a customer’s account within two to three business days
after an invoice is issued and the banking company then takes on the responsibility for collections.

“You’re not dependent on the customer for your payment,” he said. “It comes through a lockbox
arrangement.”

Fraudulent invoices can be a problem, but FTrans offers three-way invoice matching and dispute
resolution to minimize the risk, he said.

Because Synovus operates a centralized back office, the biggest task is training the salespeople in all its
branches, a task that Mr. Holladay said would take well into 2009.

In the near term, the company plans to concentrate on offering this lending service to current customers,
he said.

“We’re looking at existing clients where we may not be able to provide all the credit we would like to for
them,” he said. “They’re probably the ones who need it the most right now.”

With technological issues under control, the next big issue is risk management, Mr. Holladay said.

“This is a product where you have great diversity” among borrowers, he said. “The dollar size is pretty
small, and most of our clients are small businesses, when you come down to it.”

FTrans is also starting to offer the service to other banking companies and has signed up Darby Bank
and Trust Co. in Savannah, Ga.

Laura M. Moore, a vice president at the unit of DBT Holding Co., who is in charge of the FTrans program
at the bank, said the service has encouraged the $784 million-asset company to undertake commercial
and industrial lending such as loans secured by receivables. “Traditionally, we have leaned more toward
real estate lending rather than C&I because we couldn’t get the comfort level with it,” she said.
Darby has 10 customers using the system now and offers advance rates as high as 85% of the invoice
amounts with underwriting by CIT or Atradius, she said. “That insurance brings us a lot of comfort.”

Mr. Hayes said the market opportunity is large; about 85% of the trade credit in the United States is held
by sellers of goods and services, often small businesses lending to big customers, rather than by banks.

“It’s the only large debt in this country that is not managed by financial institutions,” Mr. Hayes said.
Four years ago, Synovus was an original investor in FTrans through the Total Technology Ventures fund
that it runs in conjunction with the card processor Total System Services Inc., which Synovus spun off last
December.

Mr. Hayes said that Total Technology provided $1.6 million in seed capital when his company was just
starting out in the technology incubator program at Georgia Tech. Total Technology has contributed about
$5 million to date of the $16 million in venture backing that FTrans has attracted from investors including
Greenhill & Co. Inc. and New Atlantic Ventures.

FTrans is one of several companies looking for ways to capitalize on small business’ accounts receivable.
Receivables Exchange, a New Orleans start-up, said in October it had booked more than $1 billion in
loans using an online auction service to match up investors with sellers. And U.S. Bancorp for several
years has offered advances to sellers who use its PowerTrack online invoicing and payment system.
Joe Brannen, the president and chief executive of the Georgia Bankers Association, said the Synovus
service validates the FTrans model. “That was an incredible seal of approval for the concept.”

The credit crunch could also spur interest in the service, he said. “The people they’re trying to appeal to
are used to having a lot of their money tied up in receivables. With capital so tight, I think a lot of people
will look at this who would not have looked at it before.”