How community banks can help businesses reach the next level

Growing businesses often need an influx of capital to fund various growth activities, which is why loans and lines of credit are popular among small to midsize businesses. To a small business, a $10,000 to $50,000 loan could make a significant difference in the growth plan, but getting that financing is a big decision that should take a lot of thought before a commitment is made.
“Companies may need to act quickly, but they shouldn’t act hastily,” says Kurt Raicevich, SVP and Retail Division Head at First Federal Lakewood.
Through his interactions with business owners, Raicevich understands that there is a lot of work that goes into running their business — the owners are often doing all the hiring, firing, invoicing, as well as running much of the day-to-day themselves. When a business owner applies for financing through conventional methods, they’re asked for significant paperwork, including their tax returns, personal financial statements, accounts receivable, and payables, which takes time many owners just don’t have.
“Business owners need flexibility and speed,” he says. “Community banks understand this and offer products that enable them to apply for a loan by answering just a few questions, all electronically, so they don’t have to leave their desks. It’s good to know that funding can be available with just a few clicks.”
Smart Business spoke with Raicevich about how community banks can help businesses fund projects and what to consider ahead of a financing request.
What are the difficulties businesses face when trying to get a loan for a relatively small amount of money?
For a bank, the amount of work it takes to make a $1 million loan and a $50,000 loan is the same. Since it tends to be more economical for banks to make loans for larger amounts, it can make it difficult for businesses to get loans for relatively smaller amounts.
In addition, smaller businesses can struggle to qualify for some lending products if they lack capital or have insufficient cash flow. Some businesses may not have been in business long enough to qualify for the products some banks offer, and that can really hamstring growth.
While larger banks focus on larger businesses, community banks are committed to helping the community thrive, and that means helping small businesses. They understand that a $50,000 line of credit could be critical for a local business to grow.
What are some common uses of funds in the $10,000 and $50,000 range?
Companies typically use lines of credit that are between $10,000 and $50,000 to purchase inventory in advance of a large order — for example, when a company needs to fund a purchase of materials to manufacture products for a big sale.
A term loan is a product that funds more substantial purchases, such as a truck or a lathe. These capital goods, in turn, can be termed out and depreciated over their useful life, which can offset the interest that accompanies a loan.
What should businesses understand about the process, the terms, etc. to make sure they get the full benefit of this financing?
Businesses should do their due diligence before pursuing financing from a bank. Before committing to a loan, they should understand what goal they are trying to reach through financing. Whether they are working to improve operations or trying to open up additional revenue streams or markets, they should understand the risks and rewards of using financing to meet those goals.
In addition, business owners must understand the financial strain that financing will have on their business. If paying on a loan taken out to help one part of the business makes another part of the business suffer, it could create a damaging situation that will be difficult to recover from.

Business owners have limited time and a lot of responsibility. Community banks understand that. Community banks are constantly communicating with businesses to learn about their financing needs and best practices. Because of their experience working with small businesses, community banks are adept at finding ways to help businesses fund the projects to can help them as they grow.

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