Delaney: As bankers working with small and mid-size businesses, are your customers seeing signs of economic recovery and is this translating to improved financial trends for their business?
Zimmerman: The good news is that many of our customers who were hard hit by the economic downturn are beginning to see signs of stabilization, and even slight recovery. A decline in revenues prompted some customers to undergo the painful process of “right sizing” their operations and for others it provided the impetus to seek process improvements in an attempt to offset profit erosion.
Although the consensus among economists is that the deep and wide recessionary effects will make for a slow recovery, the businesses that have reacted quickly and decisively to the downturn can more effectively compete when demand for their products/services returns. As we have seen in prior downturns, companies that have remained well capitalized will also be better positioned to take advantage of the many opportunities for growth and expansion that provide the silver lining in the dark cloud of a recession.
Delaney: Many businesses really struggled during 2008 and 2009 but recently their performance has improved. How long will it be before they can be approved for bank financing?
O'Brien: Every business’ situation is different and unique, but speaking in general terms, the bank will want to ensure that the improved performance that a business is experiencing is sustainable.
Generally, the bank will want to see at least 6 – 12 months of improved performance prior to issuing new debt. The bank will also consider the strength of a company’s balance sheet. If a company generated losses in 2008 and 2009, the equity in their company may have eroded, and the owner will need to work together with their banker to determine the appropriate balance between debt and equity to fund their company’s operations as they move forward.
Delaney: Given your observations of how businesses fared over the last few years, what major “lessons learned” can you share with business owners out there?
O'Brien:
- The importance of adequate capital structure. Businesses need to have the right balance of debt and equity in order to withstand a downturn.
- While growth is of utmost priority to most business owners, the focus should be on profitable growth that is funded with the appropriate balance of debt and equity.
- While it can be very difficult to make the changes necessary to cut overhead as revenues fall, the businesses that made these changes immediately fared much better than those that waited hoping things would turn around.
- Although no business owner enjoys talking about the hardships the company is facing, it is critically important to maintain an open dialogue with your banker so that there are no surprises.
Zimmerman: There are a number of government programs in place to help support SMBs, including financing programs offered through banks and in conjunction with the SBA, the US Treasury Department, State Treasurer’s Office and many others. Although many of these programs are offered to support growth and expansion efforts of the SMBs, some offer relief for existing debt in the form of a refinance. Your commercial banker is your best resource to see which program may help your business.
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