Banking is all about relationships, and the right partner can carry a business from inception through growth and into an industry leader.
“Growing a business is really about having a team of professionals working together. From a banker’s perspective, the most important thing is building a relationship with the business owner,” says Olie Williams, senior vice president and director of Business Banking at ViewPoint Bank.
Smart Business spoke with Williams about how banks work with businesses throughout various phases of their development.
How can start-ups secure bank financing?
It is important to come prepared to discuss four key elements related to financing. The first critical element is a good, solid business plan. This is important for all business owners, but especially small businesses that are just getting started. At a minimum, the plan should be a road map for the first three to five years of your business. What does your company plan to sell, and what is your anticipated annual net profit from those goods or services? It is also important to show how you plan to market your company. Banks love to see the thought and planning that has been put into the business.
The second critical element is to define your capital needs. What capital resources do you have presently to build the business, and what are your projected needs as the business grows? There needs to be some capital investment on the owner’s part. One mistake small business owners frequently make is underestimating capital needs when starting a business. Many times, they don’t account for money they’ll need to support their family’s day-to-day living expenses.
The third critical element is a strong personal credit history.
Finally, you will want to consider what assets you own that could support the loan request in the form of collateral.
Is bank financing the right route for start-ups?
It depends on the answers regarding those four key areas — business plan, capital needs, personal credit and collateral. If you have no capital to invest in your business, it’s going to be a challenge to get bank financing. That’s why many small business owners finance with credit cards or home equity lines of credit.
Of course, start-up businesses also can be financed through banks using U.S. Small Business Administration (SBA) loans. An SBA loan is a good vehicle to use when a company doesn’t have the necessary financial history.
How can banks help companies once they reach the growth phase?
When a business is growing, it’s very important to assemble a ‘go-to’ team of experts that includes an accountant, attorney, insurance agent and banker. These four professionals will get to know and understand the business and work together to support the company.
The more your banker gets involved in your company’s strategic conversations, the better he or she can provide products and services to build on your plans.
Businesses often grow too fast, without the capital base to support the growth. Banks want to see growth, but in a balanced way. Best practices would suggest that your outside team of professionals meet quarterly, or at least annually, and review the business plan and future needs with you.
Does that relationship translate into financial support that might not otherwise have been provided?
Absolutely. When a bank has a relationship and understands the business, there is a comfort level that helps when things don’t go exactly as planned. The banker has confidence in the owner’s ability to operate the business in good and bad times.
The time to get to know your banker is not necessarily when you have a need. If you have a good relationship, your banker understands your business and can address needs that arise, which could be treasury management or other aspects of banking — it’s not just lending.
Growing a business is all about having a good team behind you. An owner needs to make sure he or she has bankers and other key professionals who communicate with each other and understand the business.
Olie Williams is senior vice president and director of Business Banking at ViewPoint Bank. Reach him at (972) 801-5889 or [email protected].
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