Ask Our Experts: How to Assess Your Business Growth Opportunities before 2022

 

 

Please note: The following transcript is from a previous Copper State Credit Union virtual event and has been modified for readability and clarity.

 

Introduction

 

 

Christina, Host
Good evening everyone. My name is Christina Kredit. I'm the financial wellness program manager here at Copper State Credit Union. This is David. David, thank you so much for being with me tonight! For those who are new here, Copper State Credit Union operates in Arizona. We have seven branch locations plus a branch at GCU, and we offer all kinds of loans and accounts for residents of Arizona. So really excited to be here. We have a big focus on family and financial empowerment, and that's why we are here. Next, I’d like to introduce my guest, David Rosol. He has 17 plus years of commercial lending experience, so I know that some of that was with the Small Business Administration.

 


David, Commercial Lender Program Manager
Yes, working on SBA divisions that are backed by the Small Business Administration.
Then I moved up to small business, I ended up managing Comerica Bank's largest small business group in there as we had a bot in that one division, a little over a half a billion dollars in small business loans. And then I ended up at BBVA Compass in the middle market group. Most of my experience is with business growth plans and business growth capital. 

 


Christina, Host
And we're going to talk about some of those and what that means this evening. Our webinar is going to be about 20, 25 minutes long in case you are curious, but just want to thank you all for joining us. And yeah, I can't let this go before sharing some of your more interesting fun facts about you. Weren’t you almost a professional bowler?

 


David, Commercial Lender Program Manager
When I was young and traveling around the country with the PBA and participated in that, I realized you have to be great at bowling to make any money. I was only good.

 


Christina, Host
I also heard you are quite the barbeque expert!

 


David, Commercial Lender Program Manager
We got into it as a hobby, my wife, my two boys and just the family thing on the side back in '07, actually. And it just was fun, relaxing through the weekend, cooking in a random parking lot or park and it grew. We were fortunate enough to do pretty well. We won Arizona team of the year for 2012 and 2015.

 


Christina, Host
Very cool! Hopefully we have some small business owners hanging out with us today; we really love talking to our small business owners at Copper State Credit Union. Many of you who bank with us love to connect on social media. Make sure you follow us, interact with us, on Facebook, Instagram, Twitter, & LinkedIn, because we do love to find opportunities to brag about our small business partners and promote you when we can.


Poll Question: What determines if a business is considered a ‘small business’?
A. Number of employees
B. Sales dollars
C. Number of individual Locations
D. Either A or B

 


David, Commercial Lender Program Manager
It can be sales amount, dollars, employees, and they all vary widely depending on the industry. You can take a look at what your industry peer group looks like and that will tell you how ‘small’ of a business you are.

 

What are the biggest problems that you see small business owners facing right now as we continue to battle COVID?


Christina, Host
Great. Now, let’s start talking about growth, because that's what this webinar is about.
You've been in this industry for a long time. What are the biggest problems that you see small business owners facing right now as we continue to battle COVID?

 


David, Commercial Lender Program Manager
Well, stumbling blocks right now are interesting, and the one preface I'll let the viewers out there know is, I took my barbecue and opened up a restaurant. So I owned a restaurant for 10 years, and then COVID decided I didn't need to do that anymore! Honestly, I can say that I understand better now what the small business owners are going through than what I did when I was just a lender. When you walk in an owner's shoes, you'll really see. So right now COVID's impacting on so many different levels.
1. We have a supply issue. I don't know if it's too late to get ahead of that, but it's also one to see if, hey, I can still get something, might be time to stock up.
The caveat on that is, you don't want any obsolescence. So depending on what your industry is, how long shelf life is, be aware of those things. Maybe looking at a term loan for something like that or one of those aspects.
2. Employees - getting people that want to work, to show up to work and are excited about it. And I think every owner out there has fought that battle at some point.

 


Christina, Host
That sums it up pretty accurately what a lot of businesses of all sizes to some degree are running into, but it's harder to absorb those challenges as a true small business, than it would be for the big guys.

 

 

David, Commercial Lender Program Manager
Yeah, because unfortunately, it's tough for small businesses to save for a rainy day like the large corporations do. Even though small businesses are the cog that keep the economy going.
That’s why it’s so important to start the conversation early with your financial institution. I’d love it to be me, but whoever it is, start a relationship and move the needle back from transactional to relationship. We have a lot of great information for small businesses. We can bounce ideas. We're extremely cost effective, because the phone call's free. If you're not getting this type of 1-1 counseling service from your bank as a small business owner, you should.

 

What are those resources and other partners to have in place before business growth?

 



Christina, Host
Speaking of that, what are those resources that every business owner should have in place before they start trying to grow?

 


David, Commercial Lender Program Manager
Again, a relationship with your financial institution. Most of the time I see business owners come to me, (I use the baseball analogy because my kids played baseball through college.) Ninth inning, bases loaded, and they say, fix this problem. Get me out of this. I'd love to get there before the game started and say, I see where you're trying to go. Let me put some things in place for you, ahead of the game. If you’re profitable and you're doing well, but you’re about to burn this capital on what you need. That’s when it’s a good time to talk.

 

 

Christina, Host
So partners, obviously a bank or a credit union, someone who you can be a partner with in that sense. What are the other partners they should have in place?

 


David, Commercial Lender Program Manager
Some form of lawyer, tax attorney, and accountant – find those people that will show you they care enough to go the extra mile for you.

 



Christina, Host
So would you say that people who come to you in the ninth inning, is that something you can often help them with, or how do those usually end? Just to give some perspective on planning versus waiting until you're in a tough spot.

 


David, Commercial Lender Program Manager
Can you fix it? Sometimes.
But often not within the needed timeframe. If everything’s there, I have all the financials needed quickly, sometimes it can work in a pinch. But it’s so much more effective to have a conversation before your hair is on fire as a business. 

 

 

What are the different types of business loans and what are they used for?

 


Christina, Host
The next thing I want to talk about is the different types of business loans or commercial loans and what they're used for. So I know, we've had many conversations about how commercial lending looks very different than getting a loan as Jane Doe. It's a different process and there are different products and it's not a one size fits all solution. So I really want to hear more about that, if you have any specific examples or details you could give, I think that would really help the people who are watching today.

 

 

Credit Score's Role in Business Lending

 


David, Commercial Lender Program Manager
Business banking specifically, I call it a world of shades of gray. I can have two businesses that are very alike and I have to treat them differently, because just the way that they process inside and outside the collateral. So there's no real cookie-cutter. I'm driven on a secondary and almost tertiary basis of credit score. I'm driven harder on the cash flow and collateral situations.

 


Christina, Host
Okay. So on the business funding side, credit score is not the first thing you're looking at.

 


David, Commercial Lender Program Manager
Credit score is important, recent bankruptcies or things that nature that would pop up and would matter. But honestly, I don't run credit right away at the beginning like you would on a personal loan.
It’s more about structuring the right type of loan. Cash flow, profitability, guarantor support, and the picture that I paint, I'm not just looking at the business, but we're also looking at the owners.

Do both financial needs of the individual and the business, I call it global cashflow, is everything strong in that arena? So there's a lot more than a simple credit score/money down calculation.

With regards to the products, you have traditional ones, our lines of credit, equipment financing, real estate, owner occupied primarily is what we were looking for and a variety of different term loans that overlap with the equipment financing and so forth. What's most important is having the right business growth capital.

 

Example of Business Loans Being Matched to Business Needs

 


Christina, Host
Can you give me an example of maybe what each of those would be used for?

 

David, Commercial Lender Program Manager
So a line of credit for a business is typically used to supplement. Let's say you provide a service, but you give your client 30 days, 60 days to pay. Well, you have accounts receivables out there. So we're going to take that line of credit and base it on the receivables and try to find a way for you to access capital. The idea is you use the line to get through your operation until you’re getting paid.

Ours is typically an advanced rate, a percentage, usually 75% or under on the eligible receivables. It's a little more complicated, but if you had $100,000 in receivables, you'd have $75,000 to use on that line. And the idea obviously is, as you get your receivables in, then you pay the line down and use it.

So being positioned for growth means understanding the type of loan you need. That's where I come in as the relationship partner, trying to talk to the member or the new client that's coming in and saying, "Hey, now this is what I'm seeing. What are your plans? Long term? What can we structure? How can we get there?" I want you to succeed. I'll be honest, I get a little thrilled when I see my customers do well. I know I don't get any credit, but it's just good to see when it's like great because I want every business out there to succeed.


Here’s an example of a business growth plan not set up ideally: If a business member had a business line of credit and used it for a new truck. A truck is a longer-term asset (2-5+ year) and there will be depreciation involved - that's where your tax expert comes in. You don't want to use your line of credit to do that because you're paying interest-only. And then sometimes you get stuck and you're never paying that truck off and you don't have your capital. So that'd be what I refer to as a mismatch of funds.
The loan term should somewhat match the length of the life of the item you’re using it for.

 


Christina, Host
What makes you passionate about the work you do with business owners?

 


David, Commercial Lender Program Manager
I fell into it, I really the small business side of things. My favorite loan was a small SBA loan for a woman that worked three jobs and had a dream to own a coffee shop and she opened it up. It was 30 grand, but she was so passionate and she wanted it so bad. That was the most fun. Again, I love to see when people win. My wife and I would visit her shop when we still lived in the Bay area.

 

Business Growth Readiness Quiz Info


Christina, Host
So we’re providing everyone with a quiz, or assessment, for small business owners to take a look at and helps you answer the question “Are you ready to grow? Are you potentially ready for a business loan?” Can you talk a little bit about what’s going to be on the quiz and what we should be thinking about?

 


David, Commercial Lender Program Manager
Sure. Well, first and foremost, any financial institution is going to be on the conservative side, financially, because we take all the downside risk with none of the upside risk. Copper State CU is primarily working with businesses that have been in operation for two to three years or more and profitable. Even if you're looking for growth and loans, because we need some type of cash flow that will pay for the new obligation that you're bringing on. As we add debt to you, are you able to do that?
Are you able to pay for everything that you need right now in addition to that extra debt? So that's called debt service.

 


Christina, Host
You just want to have some wiggle room, like a margin.

 


David, Commercial Lender Program Manager
Yeah, we need a little wiggle room. If you're buying a piece of equipment because you used to outsource it, I can add back those costs that you used to pay someone else. That's what makes my job fun too, as I get to dig into a business and try to understand a little bit about what they do and then how I can help. My job is to help a member or a new member and protect the credit union. We work in unison and try to find win-wins.

 


Christina, Host
Thank you so much, David. We're just about out of time, but I did send over that link to the survey and quiz page for everyone. So if you follow the link you’ll see a quick survey and then get your free business growth quiz.



David, Commercial Lender Program Manager
Thanks Christina, and I look forward to working with our business members in the future.

 

 

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This article is intended to be a general resource only and is not intended to be nor does it constitute legal advice. Any recommendations are based on opinion only. Rates, terms and conditions are subject to change and may vary based on creditworthiness, qualifications, and collateral conditions. All loans subject to approval.