How banks can help businesses achieve their goals

Through smart planning and a little luck, there comes a time in a company’s life cycle when it has the chance to aggressively grow. To pursue this growth, companies may look to add new and growing clients. They may add a production line to launch a new product or increase volume. Or they may acquire a business. Some companies may leverage the momentum to sell or transition the company to new owners.

“When companies are firing on all cylinders — when market opportunities and sound, creative strategies align — it’s a great time to be more aggressive in their pursuit of growth,” says Mike Toth, president of Westfield Bank.

Smart Business spoke with Toth about how banks can help businesses achieve their growth goals.

What supports do businesses need during periods of accelerated growth?

Companies looking to speed up their growth should spend time re-evaluating their client relationships and client makeup. It’s a good idea to look at the existing client base to ensure there is a higher percentage of growing businesses within their client portfolio. If they find they don’t have many clients that are growing, it’s highly recommended that the company seek out more clients that are in that mode.

Many companies are leveraging their bank’s relationships with accounting firms, attorneys and other service professionals as they pursue acquisitions — something not a lot of business owners have dealt with — to perform valuations and other due diligence processes.

Access to capital is another need, both short-term working capital and longer-term capital, to support fixed asset purchases and acquisitions that are critical to really take full advantage of a window of opportunity.

What, generally, tends to slow down business growth?

One barrier is access to talent. Some companies can find themselves in a market in which highly qualified candidates are hard to find, which creates competition for truly talented people.

It can also be difficult for companies to grow when they are unable to get the funding needed to take critical next steps, such as servicing a large new client or upgrading equipment. Companies that can’t access capital can find themselves with missed opportunities.

How are banks able to help businesses grow and overcome obstacles to growth?

In order to address those impediments to growth, businesses are well-served when they network and build relationships with their bank and other service partners. Companies should leverage their banker to make introductions to potential partners and, maybe counterintuitively, their competitors. It’s not unheard of for competitors to collaborate on certain projects when it’s mutually beneficial. And banks can bridge that gap.

Banks are also helping companies overcome obstacles in the market by providing capital and making independent insights — objective opinions that can give companies a new perspective on the market and their place in it.

A company’s banker can work with owners or executives to help them more accurately predict and plan for future capital needs. They can also identify potential pitfalls by leveraging not only their past experience, but the wisdom of other clients who found themselves in similar situations.

What are the best ways for businesses to create strong relationships with their banker?

Business owners can get the most out of their relationship with their banker by being transparent and communicating regularly. Business owners should be explicit about what they’re looking for from their banker. Some banks will host networking events, which are good places for business owners to make new connections.

An accomplished banker will get to know a business, and through that knowledge provide customized solutions to overcome obstacles and support the company’s goals. Banks want to see their clients thrive, and will find ways to be supportive, whether that means help with idea generation, networking and building relationships, or finding creative ways to build value.

Insights Banking & Finance is brought to you by Westfield Bank

Why mitigating cyber fraud should be a top priority in your company

Ransomware, malware and phishing attacks are the major types of attacks being used today, all of which are a means to facilitate payments fraud via check, wire, ACH and credit cards. These methods of entry seem to have one of two primary purposes. One is an account takeover, which is an attempt to gain access to an account. The other is business email compromise, in which targeted email accounts are compromised and the owner is impersonated by a fraudster who makes requests to move payments around, a tactic that’s become increasingly popular as a means of perpetrating payments fraud.

“Business email compromise has shown to have traction,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank. “These emails legitimately look as if they’ve come from a manager, and employees naturally respond to the request. The result is that dollars are increasingly moving out of company accounts.”

Smart Business spoke with Altman about the cybersecurity threats that are affecting companies’ financial accounts, and how companies and their banks can mitigate those threats.

What steps have banks taken to protect their clients from fraudulent banking activity?

Banks have taken at least two primary approaches to combat fraudulent banking activity. Communication and education have been important first steps. Through this approach, banks are helping their clients consider the cybersecurity landscape. Tactics will continue to evolve, so it’s important to establish a dialogue so that business owners can better understand the impact cybercrimes can have on their companies, regardless of their size, industry or characteristics.

Products and offerings are being created to help mitigate fraud, products such as positive pay and cyber liability insurance. There are also strategies such as establishing multiple accounts, each of which is used for a specific purpose. That can help limit potential fraud and lead to faster identification of fraudulent payments if a transaction occurs that’s out of character for a specific account.

Banks can also validate transactions. When a request looks outside the norm, the bank will call the customer to verify that the transaction was legit prior to any money movement.

What can companies do to mitigate cyber fraud, especially financial fraud?

It’s important to stay informed about what’s happening in the area of cybersecurity and cyber threats because resiliency is a key part of business safety.

Educate employees on what to look for in terms of fraud — for instance, don’t click on links because of the threat of malware, don’t provide personal information to anyone through email and be empowered to validate any request to transfer funds.

Also, companies should evaluate their technology, making sure their networks and systems are up to date and aren’t vulnerable to attack.

From a payments perspective, think about internal processing and the controls that are in place to make sure money isn’t moving unexpectedly. Companies can institute dual verification of payments, two factor authentication and other steps to be more aware of what money is coming in and what’s going out.

Why is it important for companies to act now to protect themselves from cyber fraud?

Fraudsters are looking for the path of least resistance, so companies must be vigilant and don’t assume it’s an unlikely scenario. Payments fraud has been reported in all 50 states and in 150 countries. Not all of those attempts are successful, but it highlights the determination fraudsters have for finding a way in. It’s also an indication that fraud will not only continue to happen, but may happen more frequently.

While protecting against payments fraud might seem like just one more thing to do, preparation is less disruptive than a financial or data loss from a successful breach. That can be a major distraction as companies try to recover their losses and manage their reputational damage.

Cybercrime takes on lots of shapes and forms. Companies must believe that it could happen to them and be ready for it in order to minimize the chances of a successful attack.

Insights Banking & Finance is brought to you by Huntington Bank

Why it’s important to include your bank in year-end planning

As the end of the year approaches, businesses often start putting plans together for how they’ll approach next year’s market.

“Right about now is when people start planning,” says Kurt Kappa, chief lending officer at First Federal Lakewood.

He says it’s usually right around the months of September and October that companies start to focus in on budget planning, looking for areas of opportunity to expand their sales, and line up equipment purchases to either replace outdated equipment or expand into new areas of business.

“Companies, as they take into consideration all their possible moves in the coming year, should really get their bank involved. That way, whatever their plan, it can be properly funded,” he says.

Smart Business spoke with Kappa about what companies should consider as they set a strategy for how they’ll approach the year ahead.

What should companies review as they develop their strategy for the coming year?

A good place to start is by taking a look at areas where improvements either need to be made or can be made, as well as where growth opportunities exist and how the company will approach those. 

Companies should make sure their cash flow aligns with the capital needs of their expansion plans. If a strategic move runs the risk of draining the company’s cash flow, it could mean the company isn’t able to meet a bank’s lending standards or the cash-flow covenants in their loan documents. 

Banks have debt service coverage ratios set on the loans they make. If a company spends a dollar, it’s got to show the bank that it will make more than that on the return. If they can’t, they won’t get more money to expand or make capital purchases. That’s why it’s important to plan now so companies can have these conversations with their banker and make the necessary adjustments to get the financing they need.

How should year-end planning align with a company’s five-year strategic plan? 

Companies always need to be flexible. While it’s important to stick to a carefully crafted, long-term strategic plan, there will inevitably be things that change during the implementation of that plan, both positive and challenging.

For instance, a company could find itself faced with an attractive potential acquisition that it didn’t foresee, or there’s an opportunity to land a new, large customer. On the other side, a company might have a key piece of equipment break and need to replace it with a new piece that’s more expensive than the current model — something that falls outside of the company’s anticipated expenses.

Changes such as these require companies to adjust their financial plan. They’ll want to stick relatively close to their five-year strategic plan budget but allow for the flexibility to capitalize on opportunity and adjust to unforeseen setbacks. 

Who should be involved in the planning?

Planning the year ahead should involve the leadership team, as well as a trusted CPA. The company’s bank will play a significant role in a company’s plans going forward. Often, however, the bank has already set the financing guidelines and it’s the CPA who keeps the company in line with those guidelines.

How can a company’s bank help as they map out their strategy?

It’s good for everyone to understand what the bank’s financing requirements will be if the company looks to acquire. For instance, what will be the out-of-pocket obligation? What will be the debt-service ratios? And how will it all affect the banking relationship?

Have a conversation about the structure, and give considerable thought to whether the company can meet those goals. If not, a major move such as an acquisition might not be possible, or profitable, and the opportunity should be allowed to pass.

Now is the time for companies to start looking at their year-end forecast and compare that to their budget vs. the actual figures. They should project what they anticipate doing for the upcoming year and make adjustments so they can feel confident that the plan is achievable, focus on it and grow.

The whole team, including the banking partner, needs to be on the same page in order to achieve success.

Insights Banking & Finance is brought to you by First Federal Lakewood

The definition of business longevity is based on ownership’s goals

Business longevity doesn’t necessarily mean working to ensure a company exists beyond first-generation ownership. Rather, the meaning of longevity depends on the goals of ownership.

“Sometimes a business was mainly created to provide wealth for the owner, so longevity could mean staying profitable long enough to realize a successful sale,” says Joseph Bilinovich, senior vice president and market team leader at Westfield Bank.

However, he says business owners do change their minds. 

“Owners sometimes realize the importance of the business to their employees and their employees’ families. Whatever the original goal, they sometimes end up taking personal responsibility to make the business successful so that it can continue to exist and provide for the people who work for them for years to come.”

Smart Business spoke with Bilinovich about defining longevity and how to achieve it. 

How do owners/founders determine what longevity means to them?

Longevity has a constantly evolving definition. A business could be created just to fill a need, for personal reasons such as to support a family, to fill a need in the market that isn’t being met, or it could just be a passion project — to start a business that makes the world a better place. 

For some owners, the business becomes part of their purpose. They can become passionate about helping and being there for their customers and often feel a responsibility to support the company’s employees and their families. The goal, then, becomes ensuring the business lasts as long as possible because they feel that others are depending on its success. 

What is the strategy behind longevity?

Successful business owners commit to their vision for the company and to their employees. A business can only last if there’s an investment in people. Then the vision needs to be communicated to those employees and a road map created with the mile markers to success clearly indicated. 

Longevity also means not growing too quickly. Controlled growth is preferred. Develop a steady stream of revenue and have a good customer base. It’s natural to want to keep growing, but that should be done through planning and establishing a manageable pace. 

What are the landmark stages of a business, and how do a company’s capital needs change through those stages?

The startup stage is the riskiest time for a business. Every decision is critical. At this stage, raising capital can be tough because the value of the business is based almost entirely on an idea and the owners’ experience. 

The growth stage is next. Here, owners are required to carefully manage the company’s bottom line. It takes lots of planning and forecasting, and a solid foundation in place on which to grow. It’s also when financing comes into play. Owners would be wise to tap into their banker for advice when it comes to planning and forecasting capital needs, something that’s critical during this phase. 

The next stage is expansion. That could mean expansion in terms of geography, products and services, production, or workforce. At this stage, having key people in place is very important. 

After expansion is the maturity stage where a company is either sold or passed on to the next generation. When this happens, a company can move into another growth phase, typically because the next generation of ownership is eager to expand the business. Here, banks can provide significant help in aligning a company’s capital needs with its goals. 

How can banks help owners achieve their business longevity goals?

A banker can offer an outside perspective on ways to grow, such as through a well-timed acquisition or an influx of working capital. From a financing and financial statement management perspective, bankers can get into the numbers and help owners put them into a bigger-picture context to better navigate growth and slowdown periods. 

Bankers are in a position to stand back, look at the business from the outside and offer a fresh perspective. They can help owners assemble and execute a step-by-step game plan to achieve their goals and bring success to any stage of business.

Insights Banking & Finance is brought to you by Westfield Bank

How early stage companies can use SBA loans to grow their business

SBA loans were originally created to fill gaps in access to capital experienced by small businesses. As it does that, SBA lending moves on a spectrum. When the economy is good, there is a dip in SBA lending, which is what’s happening now.

That, however, isn’t a bad thing, says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank.

“One of the reasons SBA lending is down is because there are more options for small businesses to access capital than there have been in prior years,” he says.

SBA, however, still has a role in this economy. SBA customers are using the program as a growth tool — taking on another location, buying real estate they once leased, or acquiring another company.

Smart Business spoke with Altman about the role of SBA loans in business growth and how the lending climate in today’s economy is affecting early stage companies.

How well do companies understand SBA loan products and their applications?

SBA remains the best-kept secret in the business capital marketplace. There is lots of misinformation and urban legends about the program.

For example, companies often believe they’re not ready for bank financing. That, too, often leads to business owners bootstrapping an expansion through personal loans, credit cards, second mortgages or investments from partners rather than turning to an SBA loan.

SBA products are the most patient capital available outside of loans for real estate. They offer low interest rates, are covenant-free and come with terms small or rapidly expanding businesses need at their most vulnerable state.
Early stage companies need to focus on the first three years of operations. Too often, business owners focus solely on getting started and don’t create a working capital cushion for the ‘what ifs’ — a water pipe break, serious illness, or loss of a primary customer. SBA loans can help in this regard.

There is so much information and resources available for free to help business owners understand SBA loans and prepare their company for bank financing. There are SCORE financial education seminars hosted by the SBA that help businesses learn how to put together a business plan and create a balance sheet, both of which are critical to help small businesses prepare for and have an end-game in mind for their financing needs.

When does it make sense for a company to take advantage of an SBA loan?

SBA loans are good for early stage companies. It’s one loan that serves multiple purposes and has a good structure. Even businesses that are short on collateral and high on risk, like those that operate specialty properties such as a golf course or gas station — something that creates collateral concern for a lending institution — are good candidates for an SBA loan.

Businesses that represent a higher-than-normal risk for lenders can use SBA loans to access capital within a traditional lending relationship. That enables the bank to get to know the business and its owner, and that can lead to a traditional lending partnership over time as the bank comes to understand its risks and collateral grows.

What caution should companies take as they apply for an SBA loan?

Businesses should be careful about the equity partner they choose. Put any lender through an interview process to ensure they’re a good fit. And interview a bank the same way. A banker should align with their business client’s goals. That helps the bank, which is an SBA partner, facilitate the program and structure products to meet the business’s goals. When done right, this will set up a business for success years down the road, not just satisfy an immediate need.
Businesses should also do their research on capital options and explore each. The easiest to access isn’t always best. And don’t sign up for financing without fully understanding the terms.

There’s lots of information out there on financing to help small businesses grow and flourish. Take advantage of this to find the best financing situation.

Insights Banking & Finance is brought to you by Huntington Bank

Funding options when acquiring equipment in a strong economy

In 2018, many companies increased the pace at which they acquired equipment because of favorable tax law changes and substantial year-over-year growth. In 2019, there continues to be a strong appetite for new and used equipment.

“Capital spending will remain strong and in positive territory for 2019, while credit market conditions should remain healthy,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank. “The time to capitalize on equipment purchases is now.”

Smart Business spoke with Altman about how to determine the best method to fund equipment acquisitions in today’s economy.

What are the factors that determine how a company finances equipment?

Companies should factor in how buying or leasing equipment will help optimize their income tax, balance sheet, cash flow and equipment situation before entering into any legal agreement.

From the income tax perspective, reviewing the alternative minimum tax position, net operating loss carry forwards, and bonus depreciation requirements are key considerations.

Balance sheet review items include managing to balance sheet and income ratios, ROE and ROA performance measurements, anticipated events that require companies to preserve cash and borrowing, and how the FASB accounting changes will alter a business’s approach.

Cash flow items include 100 percent financing to conserve cash for other needs, minimizing monthly payments, and matching payments with seasonality.

Equipment considerations should focus on what type of equipment a company plans to acquire and when it expects delivery, obsolescence concerns, and long- or short-term ownership preferences. Review all four areas to find the right loan or lease solution.

How has the current economy affected how companies finance equipment acquisitions?

In this cycle, the corporate tax rate change from 35 percent to 21 percent increased the amount of cash on hand. Companies are making more cash purchases than normal, even though interest rates and terms continue to be favorable.

Many companies that have relied on loans for capital expenditure purchases are rethinking this strategy based on whether they can use all of the depreciation benefits in addition to having to deal with limited interest expense deductions born of the Tax Cut and Jobs Act of 2017. There are strategies to maximize the after-tax cost of acquiring equipment. Conserving cash for future growth and acquisitions while entering into the right loan or lease agreement for the right situation can be a prudent strategy.

What is a tax advantaged lease and when do they come into play?

All decisions to acquire equipment have an effect on the income tax position of a company. With the Tax Cut and Jobs Act of 2017, interest expense limitations for companies over $25 million in sales are causing companies to consider tax leasing over debt in certain circumstances. If a loan generated interest expense that cannot be fully utilized, the company is not maximizing its after-tax cost of capital. Among the advantages of tax leasing is a 100 percent lease expense deduction, which could reduce its tax obligation.

Tax leasing allows a company to customize payments based on seasonality, reduce cash flows while entering into a lower cost of capital during the usage of equipment, and offers the opportunity to purchase the equipment for long-term ownership.

What are banks looking for from companies that want to finance equipment purchases?

Knowing what the capital expenditure plans are for the next 12 months and having a plan for acquiring the equipment are key for banks in determining a company’s credit needs. Banks focus on cash flow as the primary source of repayment, with an interest in the value of the collateral as a secondary measure.

Banks will also ask how this additional expenditure will improve revenue, efficiencies, and profit. In line with prudent credit reviews, historical performance, coupled with pro-forma plans, will be an integral component as companies look to form a strong bank partnership during growth or stable economic cycles.

Insights Banking & Finance is brought to you by Huntington Bank

The definition of business longevity is based on ownership’s goals

Business longevity doesn’t necessarily mean working to ensure a company exists beyond first-generation ownership. Rather, the meaning of longevity depends on the goals of ownership.

“Sometimes a business was mainly created to provide wealth for the owner, so longevity could mean staying profitable long enough to realize a successful sale,” says Joe McNeill, senior vice president and Medina market team lead at Westfield Bank.

However, he says business owners do change their minds.

“Owners sometimes realize the importance of the business to their employees and their employees’ families. Whatever the original goal, they sometimes end up taking personal responsibility to make the business successful so that it can continue to exist and provide for the people who work for them for years to come.”

Smart Business spoke with McNeill about defining longevity and how to achieve it.

How do owners/founders determine what longevity means to them?

Longevity has a constantly evolving definition. A business could be created just to fill a need, for personal reasons such as to support a family, to fill a need in the market that isn’t being met, or it could just be a passion project — to start a business that makes the world a better place.

For some owners, the business becomes part of their purpose. They can become passionate about helping and being there for their customers and often feel a responsibility to support the company’s employees and their families. The goal, then, becomes ensuring the business lasts as long as possible because they feel that others are depending on its success.

What is the strategy behind longevity?

Successful business owners commit to their vision for the company and to their employees. A business can only last if there’s an investment in people. Then the vision needs to be communicated to those employees and a road map created with the mile markers to success clearly indicated.

Longevity also means not growing too quickly. Controlled growth is preferred. Develop a steady stream of revenue and have a good customer base. It’s natural to want to keep growing, but that should be done through planning and establishing a manageable pace.

What are the landmark stages of a business, and how do a company’s capital needs change through those stages?

The startup stage is the riskiest time for a business. Every decision is critical. At this stage, raising capital can be tough because the value of the business is based almost entirely on an idea and the owners’ experience.

The growth stage is next. Here, owners are required to carefully manage the company’s bottom line. It takes lots of planning and forecasting, and a solid foundation in place on which to grow. It’s also when financing comes into play. Owners would be wise to tap into their banker for advice when it comes to planning and forecasting capital needs, something that’s critical during this phase.

The next stage is expansion. That could mean expansion in terms of geography, products and services, production, or workforce. At this stage, having key people in place is very important.

After expansion is the maturity stage where a company is either sold or passed on to the next generation. When this happens, a company can move into another growth phase, typically because the next generation of ownership is eager to expand the business. Here, banks can provide significant help aligning a company’s capital needs with its goals.

How can banks help owners achieve their business longevity goals?

A banker can offer an outside perspective on ways to grow, such as through a well-timed acquisition or an influx of working capital. From a financing and financial statement management perspective, bankers can get into the numbers and help owners put them into a bigger-picture context to better navigate growth and slowdown periods.

Bankers are in a position to stand back, look at the business from the outside and offer a fresh perspective. They can help owners assemble and execute a step-by-step game plan to achieve their goals and bring success to any stage of business.

Insights Banking & Finance is brought to you by Westfield Bank

Owners need to prepare themselves and family for life after business

A personal financial plan, which serves as a road map for living life today and in retirement, is essential for everyone to have, especially a business owner. 

“It’s usually the case that business owners are so busy working on the short- and long-term plan for their business that they overlook anything not directly related to that pursuit,” says Brian Hirko, vice president, program manager and senior investment adviser at FFL Investment Services. “Personal finance takes a backseat, and that can become an issue.”

Financial plans not only set up the business owner for retirement, but can also serve as a road map for family and trusted advisers should there be an event like a death or disability that happens to the owner. 

“When such devastating events occur, it is important to have a plan in place to help guide family or advisers on the financial plan,” says Anne E. Bingham, senior vice president and chief private banking officer at First Federal Lakewood. 

Smart Business spoke with Hirko and Bingham about personal financial plans and what goes into creating them.

What is a financial plan?

AB: A personal financial statement is a good starting point. It’s a snapshot of a person’s financial history at a specific point in time, listing bank accounts, investments, real estate, mortgages and business assets. It shows a person’s net worth and gives owners a sense of where they are financially today so a plan can be created — a financial plan — to get them where they want to be to afford the lifestyle they want after retirement. 

How do business owners’ businesses manifest in their financial plans? 

BH: The business will likely show up as the main source of income or debt for the owner. When an owner is planning for the future and considering their business, the age of the owner and stage of life should be considered. Someone who is 65 and tired of working might want to get a formal business valuation in preparation for a sale or transfer of ownership. Younger owners who aren’t yet ready to exit would be better served by an informal valuation. It’s less expensive and time consuming, but provides a reliable sense of the company’s value, which can be used to form the rest of the financial plan. 

When should financial plans be reviewed?

BH: A financial plan should be a living, breathing document, not something that’s created, then put on a shelf. It’s ideal to review the financial plan every couple of years, regardless of what events do or don’t transpire. Events such as a health problem, birth, death or divorce are all reasons to revisit the plan.

These plans can be managed in software that enables owners to quickly and easily update information and make different assumptions based on those inputs to see how changes affect their ability to reach their objectives.

Who should business owners involve in the creation of their financial plan?

AB: The first person to involve should be the person you typically consult on financial matters. This could be a spouse, partner, child, accountant, etc., because it’s not just a discussion about what happens to the business, but how personal financial goals will be reached together. And owners should also include any business partners. 

A wealth adviser will typically be the guide of the financial plan. He or she might bring in other professionals, such as a private banker or insurance agent, as needed. An attorney and accountant will get involved later when it comes time to draft and execute any necessary documents.

A financial plan is not just a document, it’s a road map for life after business. However, very few people take the time to figure out how they’re going to spend the 20 to 25 years of life after retirement. Meet with a financial planning team and start planning today.

Securities and insurance products are offered through Cetera Investment Services LLC, member FINRA/SIPC. Advisory services are offered through Cetera Investment Advisers LLC. Neither firm is affiliated with the financial institution where investment services are offered. Investments are: Not FDIC insured. May lose value. Not financial institution guaranteed Not a deposit. Not insured by any federal government agency. Located at: 14806 Detroit Ave., Lakewood, OH 44107 (216)-529-5624.

Insights Banking & Finance is brought to you by First Federal Lakewood

The importance of an entrepreneurial culture in established companies

“Often when people think of entrepreneurialism, they think of someone who launches and runs an early stage business,” says Joseph Bilinovich, senior vice president and market team leader at Westfield Bank. “But an entrepreneur could be the leader of an established company, or anyone within a company who’s responsible for finding ways to enhance and improve existing products, or to create new products in order to stay ahead of the competition through continuous innovation.”

Entrepreneurialism doesn’t just happen organically in an organization, he says. It’s encouraged by leadership and needs continued support to survive.

“Leadership can empower a group or department to be open minded and share their thoughts and ideas openly without fear of criticism,” he says.

Smart Business spoke with Bilinovich about entrepreneurship in business: what it looks like, how it’s nurtured and what role banks play in helping entrepreneurial companies get their financial footing.

Why is entrepreneurship in business important?

Entrepreneurship in business helps, in broad terms, identify new products and services and adapt to a changing world. It’s the strategic practice of creativity. It’s collaborative and is undertaken throughout an organization with the aim of doing things better or doing them in a way that hasn’t been done before.

Companies survive by trying to do things differently. There’s always a competitor lurking, so there are always improvements that can be made to stay competitive not just locally, but nationally and even globally.

Entrepreneurship is a way of being proactive, testing the way a company thinks and behaves in order to gain an edge, rather than be reactive. It helps companies think outside the box.

What does entrepreneurship in business look like in practice?

Entrepreneurship in business is top-down and intentional. It is embedded in a company’s culture.

Clear priorities should be established, and processes should be put in place to get feedback and measure the results to evaluate whether what’s being done to move the needle is effective relative to the goals that have been set. There should be regular meetings and communication to discuss progress. A Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis is a concise and proven process to evaluate the progress made.

It’s great to think big and shoot for the stars, but too often companies do little to no planning regarding their capital needs and how they’ll finance their ideas. An idea on its own won’t gain traction without financial backing. So many initiatives fail not because the idea was bad, but because it was undercapitalized.

How does entrepreneurship in business relate to banking and lending?

Banks play a key role as companies look to take their entrepreneurial ideas to market. Companies need banks to provide the financing to fund innovations but also need a banking partner that can properly structure that financing.

Bankers also act as advisers to companies and deal with many types of businesses in a variety of industries and of various sizes. That gives bankers a lot of experience, wisdom and knowledge about what businesses do right and what they do wrong.

There is a lot of nonlending advice and counseling that comes from a good banking relationship. Bankers can help identify what investments should be made or when it’s better to pass, whether a company is making the right decision or paying a fair price. Those conversations require trust between a business and its banking partner.

Entrepreneurial companies are innovative in their thinking and bold in their decision making. But to survive, companies also need strong financial oversight and a trusted partner to guide them through their financial decision-making. Boldness is good, but it has to be tempered by wisdom.

Entrepreneurialism is alive in local businesses, but well-thought-out plans are critical to success. Companies should hire entrepreneurially minded employees and work with knowledgeable advisers to enhance the chances that the ideas employees generate will succeed.

Insights Banking & Finance is brought to you by Westfield Bank

What to consider when seeking growth capital

Seeking growth capital is a critically important function for a company or business owner, a function that requires considerable planning. Many times, however, business owners and managers, once they realize they need capital to continue growth, act hastily without planning, which often leads to mistakes if certain aspects are overlooked or overvalued.

“The capital acquisition process requires forethought,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank. “Importance should be placed on it well ahead of the time it’s needed.”

Companies and business owners seeking growth capital also have a tendency to focus narrowly on interest rate. Altman says negotiating small differences in the interest rate on growth capital to fund an initiative that is expected to bring, say, a 25 percent return, isn’t very meaningful.

“What is meaningful is working with the right partner to provide that growth capital,” he says.

Smart Business spoke with Altman about options and strategies when seeking growth capital.

What capital options are available to companies to fund growth?

There are a number of options for companies seeking capital. Companies can turn to banks for term loans and lines of credit as a source of senior capital. Additionally, some companies can get the junior/subordinated capital funding they need through angel investors and private equity firms. Terms are generally more flexible with those type of firms. Depending on what the business owner is looking for, an equity investment from these firms would require giving up a percentage of ownership, which may not be plausible to a company given where it’s at in its growth phase and how current ownership feels about relinquishing some control to an unknown new partner.

How do companies determine which form of capital is best to support their growth?

It’s important to have a multiyear financial projection model as the basis for decisions such as funding growth. From that projection model, a company can work with an accountant or a banker to determine the appropriate levels of capital needed and what form of capital might be best for the long term.

Capital need and the form of capital will migrate as a company’s leverage profile and leverage position change over time. Typically, the larger the company becomes — as its revenue, cash flow and asset base increase — the more capital options it has.

Capital providers will start by determining what level of capital the overall asset base of the company supports. As companies grow, that decision can shift to the level of capital supported by cash flow or its level of enterprise value.

What questions should companies with growth capital needs ask lenders?

When companies are exploring their options for growth capital, the focus should be on determining the advantages, disadvantages and characteristics of each form of capital. Equally if not more important than the terms and the cost of capital is who is providing the capital and what kind of partner that represents to a company. Certain sources of capital might want more control over a business, which might mean bringing on a partner who has the authority to make decisions on behalf of the company.

Talking with bankers, in particular, is a good opportunity to ask how the bank has helped other companies that are similarly situated. Find out how those companies found success, what made them stumble and what mistakes other business owners have made that caused setbacks at this stage in their company’s growth.

Finding the right solution is the most important decision a business owner can make. Start planning early and involve trusted, experienced advisers. It’s limiting to think of growth capital based solely on the rate, structure and terms. The partner is important, which is why companies should establish the relationships needed to acquire that capital well before it’s needed.

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