If there’s one thing bankers don’t like, it’s
surprises — of any kind. A good surprise could indicate a business owner is ready to “shop a deal.” A bad surprise
could mean a company’s financial statements won’t read as the banker expects.
“We don’t want to be caught off-guard
too late in the game,” says Alan Harold,
vice president of business banking for
Huntington Bank.
Trust is the foundation of a solid relationship between business owner and
banker. This means including the banker
in conversations about what’s next for the
company, whether discussing new equipment purchases, fresh markets to tap or
growth plans.
Trust is especially important in tough
economic times. And, as Harold points
out, business owners who communicate
openly with their bankers in good times
and bad may discover there’s a bright side
now for businesses ready to grow.
Smart Business spoke with Harold
about strategies for a successful banking
relationship in a challenging economy and
how down financial cycles can benefit
businesses.
Does a tough economy mean a bad year for
all businesses?
The sky could fall tomorrow and there
would still be business owners who would
say, ‘My forecast has not changed. In fact,
it’s better.’ Successful business owners are
always looking for ways to position themselves, regardless of the economic climate.
With lower capital rates, they may be
thinking about refinancing, or they could
be considering strategic capital purchases.
Growth right now will not only help their
companies get through the tough times,
but it will also put them in a better position
when the economy turns around.
What position are many banks taking now in
terms of lending?
For many banks, the mortgage revenues
derived in previous years are no longer as
vast. Growth within the bank has to come
from somewhere. So some banks are freeing up capital to lend to promising small and mid-sized businesses, and that is certainly the right move to diversify a bank’s
capital client base and risk profile.
Business owners have great ideas, and
they want to keep growing their companies in this economy. In many cases, banks
now have more capital to dedicate to motivated business clients. The key, again, is
for owners to communicate goals and
ideas with their bankers, who serve as
advocates on a corporate level, where loan
decisions are ultimately made in most
large financial institutions.
What opportunities are out there for businesses that are in a position to grow, regardless of the economy?
The market reaction to what the Federal
Reserve has done is what the government
could have hoped for. Lower rates stir the
pot — they get companies thinking about
growth and ways to stimulate business.
Owners can restructure their debt to free
up cash flow, which will help them work
through slower times without sacrificing
profitability. Maybe there is new equipment a company can buy that will improve
efficiency. Lower rates make now the right time to invest in those purchases. Or perhaps a company wants to expand its facility to ramp up production. Essentially,
business owners with good credit and a
plan can take advantage of this lending
environment.
So, can tough economic times be a good
thing for businesses?
This is the time for many companies to
consider their position in the market and
what they can do to continue doing strong
business now and in the future. Business
owners should ask themselves: Am I filling
the right niche? Am I servicing my clients
the way they expect? What are the most
profitable areas of my business? What
areas need more attention? An economic
downturn inspires business owners to
evaluate their success so far and decide
what they must accomplish to remain
competitive.
These conversations are more productive when business owners bring in a third
party, such as a banker. Together, they can
consider what’s next for the business and
what financial vehicles — loans, lines of
credit, etc. — are necessary to accomplish
goals. The fact is that people tend to get fat
and happy during good times, but when
times get tough, business owners are
forced to reel in expenses and take a hard
look at success drivers in the company
and how to keep those going full steam.
What is the first conversation to have with a
banker concerning growth?
As businesses close out fiscal 2007 and
plan for 2008, they should partner with a
proactive banker, evaluate their growth
strategy and establish what lending vehicles will be necessary. They may be surprised to find that there are even more
opportunities to affordably grow their
business with today’s lower prime and cap
and overall borrowing rates. Companies in
the position to ramp up in this challenging
economy will set the stage for real growth
and success when the climate changes.
ALAN HAROLD is the vice president of business banking at Huntington Bank in Akron, Ohio. Reach him at (330) 966-5148 or
[email protected].
