During the pandemic, many small and medium-sized businesses (SMBs) across New Jersey have either pivoted or shifted their business creatively to stay afloat. The pandemic also forced entrepreneurs to reinvent themselves. Some were able to pivot successfully by moving their businesses online, restructuring their operations and finding new ways to engage their customers.
We are now a year into the pandemic, the outlook for SMBs in New Jersey seems slightly better based on recent economic data. To move forward, how can you leverage your bank to help stabilize your business and finance your growth? Can your bank play a more active role in helping navigate the financing landscape?
Many SMBs in New Jersey have relied on federal and state stimulus programs through the Small Business Administration (SBA), as well as other government agencies and private foundations that offered loans and grants to keep the lights on.
While these funding sources were helpful to the survival of the businesses, many programs were only meant to be stopgap measures. For New Jersey-based companies to continue to grow in the long run, entrepreneurs in the state need to assess their financial viability and find additional financing options.
While there is a large ecosystem of financing options for SMBs, bank financing is among the most cost-efficient choice, and banks want to lend you money. Most banks slowed down on the lending activities during the pandemic not only due to global economic deterioration and market uncertainties but also because they were occupied with shifting their own operations remotely, dealing with existing customers, and dedicating resources to handle large volume of Paycheck Protection Program (PPP) loans. Depending on how quickly banks can overcome their internal challenges, it is safe to say that banks’ lending activities will resume.
In contrast to the 2008 financial crisis, banks do not have liquidity issues this time around. In fact, most banks have excess liquidity that they need to deploy. It does not mean it will be easy to get a loan from the banks now, but it suggests banks have the motivation to find good companies to lend to. Banks also carefully navigate the economic complexity and uncertainties and try to find prudent ways to lend money to businesses. That’s something every entrepreneur based in New Jersey should keep in mind along with the following:
Leverage your bank to find sustainable paths. You want to ensure your banker and/or financial advisors are aware of your situation and the changes you’ve made to the business.
If you have an existing credit facility, you should evaluate with your banker whether the loan structure still makes sense for your current business. Ask for their help to reassess the sustainable paths to profitability.
Banks have the incentives to help as they do not want your business to fail and default on the loan. Just like commercial real estate, people think banks want to take property back quickly to protect their interest. It is simply not true as banks are not in the business of owning and managing properties. They don’t want to repossess any properties unless it is the absolute last resort.
Most banks understand the unprecedented challenges the pandemic has imposed on businesses. Be upfront and transparent with your bank but come with a plan and a reasonable projection for your business. Be ready to explain any oddities and material changes on your recent financial performance.
It’s important to work with your bank in lockstep and create a financing structure that ensures the overall financial stability for the business.
Remember it’s not just you but your industry. One of the most common stories we heard throughout the pandemic is entrepreneurs embraced e-commerce by moving their businesses online. Many consumer product retailers have succeeded in transforming their companies and began to reach customers directly. Subsequently, it changes the way these businesses carry inventories, receive orders and deliver their products and services. If these are permanent changes to your business, you need to communicate to your bank about the new model and how it would be reflected on your financial statement.
Use the opportunity to understand whether your bank has flexible financial solutions that can be dialed up or down as your business ebbs and flows. To thrive in the current economic environment, entrepreneurs need to be highly aware of the shifting landscape and resources available.
Know that you are not the only one that’s making these types of changes. The pandemic has reshaped industry dynamics and shuffled competition across the country. Establish a relationship with a bank that has the expertise to support your type of business. In addition to lending the capital you need, if your banker specializes in your industry, they can offer expert guidance and industry insights to help you navigate through these changes.
Hang in there. We are seeing light at the end of the tunnel. While many small businesses in the state are still vulnerable, with the increase in vaccination rate, we are starting to see the resume of business activities. For New Jersey, the formation of new businesses has accelerated during the pandemic according to U.S. census data. We can expect to see wonderful new ideas from these companies that are born during the pandemic.
Let’s continue to stay positive. And stay together.
Wendy Cai-Lee is the founder and CEO of Piermont Bank.