Business owners have faced a lot of turmoil since 2020, but many financial experts agree that a large percentage of them are still looking to grow their enterprises in the coming year. There have been some changes in the lending landscape since the start of the pandemic, and caution is called for going forward, but executives at several Los Angeles banks are optimistic about the coming months.
According to a recent Small Business Credit Survey released in May by 12 Federal Reserve banks, 85% of employing firms experienced financial challenges in the past 12 months, up four percentage points from 2020 and nearly 20 points since from 2019.
Despite the struggles, however, a 2022 report of small business owners from Bank of America Corp. showed that around 70% of business owners plan to get funding for their business in the next 12 months, despite concerns about inflation, commodity prices and the supply chain.
In Los Angeles County in the first half of 2022, Bank of America lent $1.4 billion to small businesses – firms with less than $5 million in revenue – and $9.8 billion to commercial businesses – firms with revenue between $5 million and 2 billion dollars.
“We’re seeing very positive lending rates and approvals,” said Angela Antonio, small business regional executive for Los Angeles with Bank of America. “A significant percentage of small businesses are currently looking to expand.”
About 72% of business owners say ownership has become more difficult over the past decade due to a more competitive business landscape, challenges reaching new customers, a more competitive job market and e-commerce corporations influencing for sale.
Relationships matter more
In the BofA report, almost 80% of business owners said their business had been negatively impacted by the pandemic, with most noting negative impacts on sales, products and inventory.
“A lot of businesses had to decide if they wanted to stay open,” Richard Raffetto, president of downtown-based City National Bank, told the Business Journal. “And many customers learned where they stood with their bank.”
“Relationships are more important than ever,” he said. “Knowing your banker has become very important.”
Having a strong relationship with a bank played out during the early months of the pandemic, when financial partners were able to quickly serve existing customers through the Paycheck Protection Program (PPP), the loan program supported by the Business Administration of Small that helped companies keep the workforce employed. at the height of the pandemic.
While business owners who did not have strong ties to their bank were eventually able to access funding, firms with strong banking relationships were less stressed during the loan process.
“We turned crisis into opportunity,” said Anthony Kim, executive vice president and chief lending officer at Koreatown-based Hanmi Bank. Kim noted that PPP loans were given to customers in a timely manner, which encouraged them to bring more business to the bank and refer colleagues. As a result, “referrals increased and loan demand also increased.”
As the pandemic months passed, banks also strengthened their fintech options, making online banking easier and more accessible for community banking customers. But while financial relationships can now be built remotely, Joe Yurosek, regional president of western markets at Third Fifth Bank, noted that face-to-face meetings are still as valuable as they were before the pandemic.
“We’re meeting the customer where they want to be met,” Yurosek said. “Face-to-face meeting won’t go away, but frequency may be replaced by remote opportunities.”
Update your business plan
For owners, there may be some aspects of their business plans that need special attention in this new era.
“You have to go down to the next level of detail,” said Noor Menai, president and chief executive of CTBC Bank Corp., USA. But he says the credit is still there, even as interest rates rise.
“We ask about the strategy at a distance,” Yurosek said. “And with supply chain disruptions, we look at alternative supply chain options.”
At places like Fifth Third, potential borrowers will discuss emergency contingency plans in detail with their financial partner and benefit from placing increased emphasis on working capital needs and inventory investments, Kim Investments said.
Kim noted that financial planners at his bank are paying special attention to the liquidity status of loan customers and secondary sources of payments.
sector
More than 60% of owners recently surveyed by Bank of America said their business has fully or partially recovered from the pandemic, with more than half citing increased consumer spending as a factor that will or has helped. their business to recover.
Loans for businesses can mainly depend on the sector. Menai noted that industries he has seen doing well include e-commerce and multifamily and industrial real estate.
“We will see that many affected sectors will recover quickly,” confirmed Yurosek. “Consumer travel is booming, although business travel is stagnating. (We do) see hotel and flight utilization on slow weekdays.”
Some executives cited hospitality as a sector that has been slow to recover. According to the SBCS 2022 survey, half of firms in the leisure and hospitality industry reported a major negative effect from the pandemic, compared to only 26% of manufacturing firms.
The SBCS survey also noted that firms owned by people of color “were more likely to be in fair or poor financial condition.” The survey found that 76% of black-owned businesses categorized themselves this way, compared to 55% of white-owned businesses.
To help some entrepreneurs, banks are developing programs in certain sectors to increase access. For example, Bank of America is starting a pilot program in which female and minority borrowers can receive a grant for a down payment on commercial real estate.
More than half of the business owners in the BofA report are working to protect themselves from future risks months into the pandemic.
Some 37% of respondents said they were more focused on digital sales, 36% had adopted new technology and 31% had diversified their revenue streams.
For their part, lenders hope they will continue to play a positive role for small business borrowers.
“We have to wear the white hat this time compared to how bankers were perceived after the 2008 financial crisis,” Raffetto said.
“Our government intervened and the end of the world did not come,” Menai said.
“Community banks will continue to be the last mile for borrowers.” “So much hasn’t changed,” Yurosek said. “Even though we went through a blackout, we proved we can do it on a temporary basis.”
