15/07/2024

The Critters

For Nice Critters

When Small Business Meets Big Business

When Small Business Meets Big Business

New Hope for Financing

I believe all business is better performed in a positive environment. If you believe good things will happen, they do…if you whine… they won’t. I work hard each day to see the cup half full. It is one of the foundations of my consulting practice. However, over the past ten years, I have had to check my negative thermometer against a pet peeve – bank lethargy.

For many years it has been apparent that small business would provide the basic employment growth in America. Therefore, I concluded that the larger business community had an obligation to nurture smaller businesses whenever possible. That phenomenon is now occurring in a big way. The Greater Phoenix Chamber of Commerce has actually launched programs to have small business owners meet with large business management and share knowledge and opportunity. This is happening in large cities around the country.

Large business has already made the economic decision to “outsource”. Yet, those large company managers are often limited in their ability to find suppliers, suppliers who may well be in their own business community. Many of the small business owners are not trained in the quality controls required by these larger companies or skilled in how to approach them.

Well guess what! Our Small Business Community is not a third world country; it just needs exposure to the demands of Big Business. They always respond when nurtured.

As this paradigm continues to grow, the next obstacle to face is getting the smaller business financed in a way that works. I won’t go into the raising of equity challenges business owners run in to, I just want to address the problems they have in borrowing money. Equipment loans have been covered for years by certain financing companies and often by banks. However, how does a small business borrow money to support large business contracts?

You would think that’s where the banks come in. Yet so much of this lending is very commercial in nature and requires banks to have certain operations that have not existed for the thirty years that I have been doing this. For all of those years, if you wanted to borrow money to operate a growing business, you needed to own real estate to pledge against the loan.
Many banks are very adept at lending on real estate, and for years many have not been as concerned how the borrower actually used the loan proceeds as long as the real estate maintained its value above the loan amount.

Times are changing… Finance entrepreneurs have been coming into many markets for the past ten years, and making operations capital available to business owners. These loans have been made against assets other than real estate…For example receivables and inventory, and often just operating capital.

Over the past two years I have been working closely with Western banks that are truly “small business friendly”. My first efforts went towards changing some credit policies that were preventing the smaller business owner from separating their personal credit from their business credit. The problem often stunts the growth of small business (this has been covered in previous articles).

What do I mean by truly small business friendly banks? All banks say they want to help the small business owner. However, in many cases that is just code for “I want your deposits, but don’t ask for a loan without real estate attached to the deal.”

I am happy to report this is changing rapidly. Many banks are actually putting on additional operations that can do, what is called Trust Confirmations. These banks are then prepared to do asset, leased lending that could not be monitored without those additional bank operations.

Supporting such operations can be an expensive step for banks and it is difficult for them to find the type of credit personnel who have the experience. Why? Because this type of expertise has been sparse in the Western United States.

I can tell you that several banks are now sincerely reaching out to our small business community and setting the pace for others to follow.