As a small business owner, having the right tools and resources is crucial for stability, growth and continued success.
The same is true with your company’s banking relationship. When you partner with a financial institution, you want as much value and support as possible — both financially and strategically. Finding a community banking partner that serves your complete small business needs is vital.
Let’s examine what challenges exist for small business resources and what a small business owner like you can do to best access financial support, such as lending and business credit, provided by financial institutions.
Current challenges for small businesses: Credit and assistance
Businesses face major challenges due to the effects of public health measures like shelter-in-place orders and limits on social gatherings. The companies that fuel our communities have been hit hard, and this is especially true for small businesses.
Small businesses don’t always have the reserve of assets that larger enterprises can rely on during tough economic times. However, companies like yours can access a variety of small business resources designed to address their needs, such as loans and access to business credit. Federal, state and county governments sometimes provide a range of resources for small businesses.
The U.S. Small Business Administration (SBA) offers an extensive loan program, counseling, training and business plan assistance, while the U.S. Chamber of Commerce features a series of helpful small business guides. These guides can assist your business immensely, with resources devoted to PPP loan forgiveness, unemployment insurance, employee retention tax credits and more.
How can I tell if my small business qualifies for these programs?
Definitions of “small business” vary by industry. Usually, the number of employees and average annual revenue are key factors in this determination. The SBA provides a handy Table of Size Standards and a Size Standards Tool to help you determine if your enterprise qualifies as a small business.
With this information, you can better understand how your company’s size is perceived by the federal government. This is especially important in the context of lending. Many lenders rely on these federal standards for determining if and how small business resources are available.
Taking action as a small business
Every business is different, so it’s smart to investigate the resources that most closely pertain to your unique situation. Some resources, like a small business loan, might be useful immediately; others might not be needed until years down the road.
Compiling all these resources and uncovering what’s most important is a task community banks can help with. A community bank with a history working in your region will understand how state- and federal-level guidelines and resources can be applied to businesses. As a business, going it alone can often lead to more delays and frustration than is necessary.
Local financial institutions can also provide valuable insight, experience and assistance in identifying the credit resources that are right for your small business. The right lender can act as a small business development center with custom funding, working capital and small business loan services for business borrowers.
If you’ve got a question, there’s likely an answer. A community bank connects those dots.
Small business credit and credit scores explained
To get maximum value from small business credit resources, it’s important to understand your credit situation.
A small business credit score is similar to a personal credit score in its basic meaning and intent: It acts as a quick reference point for creditworthiness. Business credit score models differ between the agencies that compile the relevant information and report small business credit scores. They don’t use the 300-850 range seen with personal scores. Instead, a variety of models are in place.
The score assigned to your business is based on the formula used by the reporting agency. These methods of calculating scores aren’t identical. Some put more weight on specific considerations than others, and certain elements present in one formula may not be used in another. However, according to U.S. News and World Report, common factors include:
- Bill payment history, which may take the specific date of payment into account along with whether your bills are paid on time.
- Credit mix, based on the different types of small business credit extended to your company.
- Credit utilization rate, which considers the amount of business credit used and total available credit.
- The overall size of your business.
Depending on the bank, though, a loan application won’t necessarily be approved or denied solely based on your business credit score. Regardless, it’s still a best practice for you to maintain consistent, on-time payments for all bills, loans, credit lines, vendor services and other expenses. Similarly, you should avoid utilizing all of your business’s available credit.
Credit and lending options for your business
When determining which type of credit or loan is right for your small business, and from which lender, the path you take as an entrepreneur is especially important. You might rely on personal capital, like savings, home equity products or additional funding from investors or relatives. But as your business becomes more established in the years to come, a dedicated business banking partner will prove invaluable.
Personal capital, in most cases, is a temporary measure for funding a business. For sustained growth and business longevity, a bank can offer the strategy, support, bandwidth and credit and lending solutions to fuel your company’s day-to-day operations and future expansion. And these relationships are designed to be longstanding.
If your financial needs change, a bank might offer a custom funding solution that’s perfect at that specific moment. Fast forward six months or a year, and a different option might be of use. That flexibility and breadth of service is what sets a valued community bank apart from other institutions.
Making the most of small business assistance from a community bank
There are a variety of ways you can leverage credit resources and financial assistance from a community bank.
You can immediately use small business loans and lines of credit for operating expenses such as funding payroll, investing in new machinery or equipment, procuring more inventory, driving customer experience innovations and more. Simply put, these resources can help keep your company’s lights and heat on.
Business credit resources can also be key when a new opportunity arises that requires capital, such as the chance to enter a new market or take on more clientele. If cash flow is tight, your business might miss opportunities that won’t return. But with the help of business credit resources, these opportunities can result in your company’s next big break.
Before applying for any type of small business credit resource, speak to your tax and accounting advisor first. A Certified Public Accountant (CPA) can provide trusted advice about business needs, accounting concerns and financial matters that can impact these types of business credit. This can help with cash flow issues, financial statement review and compilation, audits and business valuation.
The Adirondack Trust Company understands the challenges and opportunities businesses face throughout Saratoga and Warren Counties. As a local, independent bank, our goal is to help your business grow both to support you individually and to strengthen our regional economy.
Reach out to Adirondack Trust today to learn more about the business credit resources that may be available for your company.