Business owners have been through a lot of turmoil since 2020, but many financial experts agree that a large percentage of them are still looking to grow their business in the coming year. There have been some changes in the lending landscape since the start of the pandemic, and some caution is warranted going forward, but executives at several Los Angeles banks are optimistic for the months ahead.
According to a recent Small Business Credit Survey released in May by the 12 Federal Reserve Banks, 85% of employing businesses experienced financial difficulty in the past 12 months, up four percentage points from 2020 and almost 20 points since 2019.
Regardless of the difficulties, however, a 2022 report on small business owners from Bank of America Corp. reported that around 70% of business owners expect to secure financing 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 — businesses with less than $5 million in revenue — and $9.8 billion to businesses commercial – companies with revenues between $5 billion and $2 billion.
“We’re seeing very positive loan and approval rates,” said Angela Antonio, head of Los Angeles small business region at Bank of America. “A significant percentage of small businesses are currently looking to expand.”
Some 72% of business owners say ownership has become more difficult over the past decade due to a more competitive business landscape, difficulties in reaching new customers, a more competitive job market and e-commerce companies that impact sales.
Relationships Matter More
In the BofA report, nearly 80% of business owners said their business had been negatively affected by the pandemic, with most noting negative impacts on sales, revenue and inventory.
“A lot of businesses have had to decide if they want to stay open,” Richard Raffetto, president of downtown-based City National Bank, told The Business Journal. “And many customers have learned where they stand with their bank.”
“Relationships are more important than ever,” he said. “Knowing your banker has become very important.”
Having a close connection to a bank was evident in the early months of the pandemic when financial partners were able to serve existing customers quickly through the Paycheck Protection Program (PPP), the loan program backed by the Small Business Administration that helped businesses keep their workforce employed during the height of the pandemic.
While business owners who did not have strong ties to their bank were ultimately able to access funds, businesses with strong bank relationships were likely less stressed during the loan process.
“We have turned crisis into opportunity,” said Anthony Kim, executive vice president and chief loan officer at Koreatown-based Hanmi Bank. Kim noted that PPP loans were issued to customers in a timely manner, which encouraged them to bring more business to the bank and refer colleagues. As a result, “referrals have increased and loan demand has also increased.”
Over the months of the pandemic, banks have also beefed up their fintech options, making online banking easier and more accessible to community bank customers. But while financial relationships can now be established remotely, Joe Yurosek, regional president of Western markets at Fifth Third Bank, observed that in-person meetings are still as valuable as they were before the pandemic.
“We meet the customer where they want to be met,” Yurosek said. “In-person meeting isn’t going away, but frequency could be replaced by remote opportunities.”
Update your business plan
For owners, there may be several aspects of their business plans that require special attention in this new era.
“You have to go down to the next level of detail,” said Noor Menai, President and CEO of CTBC Bank Corp., USA. But he says the credit is still there even if interest rates go up.
“We ask about the strategy from a distance,” Yurosek said. “And with supply chain disruptions, we are looking at alternative supply chain options.”
At places like Fifth Third, potential borrowers will discuss contingency plans in detail with their financial partner and benefit by placing greater emphasis on working capital needs and inventory investments, Kim Investments said.
Kim noted that his bank’s financial planners pay close attention to the liquidity status of loan customers and secondary payment sources.
More than 60% of owners surveyed recently told Bank of America that 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.
Business loans can largely depend on the sector. Menai observed that industries he has seen doing well include e-commerce and multi-family and industrial real estate.
“We’re going to see a lot of affected areas heal quickly,” Yurosek confirmed. “Consumer travel is booming, although business travel is lagging behind. (We see) hotel and flight usage slowing down on weekdays.
Several executives cited hospitality as a sector that has been slow to rebound. According to the 2022 SBCS survey, half of companies in the leisure and hospitality sector reported a significant negative effect from the pandemic, compared to only 26% of manufacturing companies.
The SBCS survey also noted that businesses 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 ranked 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 launching 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 business owners in the BofA report are working to protect themselves from future risks after the pandemic months.
Some 37% of respondents said they are focusing more on digital sales, 36% have adopted new technologies, and 31% have diversified their revenue streams.
For their part, lenders hope they will continue to play a positive role for small business borrowers.
“We had to wear the white hat this time, unlike how bankers were perceived after the 2008 financial crisis,” Raffetto said.
“Our government stepped in and the end of the world did not come,” Menai said.
“Community banks will continue to be the last mile for borrowers. “So many things haven’t changed,” Yurosek said. “Although we went through a disruption, we proved we could do it on a temporary basis.”