By Adam Lervik
For The Bellingham Business Journal
From multi-generational farms to craft breweries, small businesses form the backbone of Whatcom County. When you walk down the street in our communities, locally owned businesses continue to outnumber national brands. As a commercial banker at Peoples Bank and a lifelong resident of Whatcom County, it’s rewarding for me to help local businesses find success.
I occasionally hear small business owners discuss how challenging the financing process can be. Those challenges often surround arduous documentation processes or uncertainties surrounding qualification guidelines. Here are a few ways small business owners can better prepare to discuss borrowing needs and strengthen their case for financing.
Know your business. Before we ever discuss your balance sheet or a prospective loan structure, we’ll sit down for a simple conversation. I’d like to learn about your business, but along the way, I want to connect with you as the entrepreneur behind that business. How is your company organized? How do you create the products/services that you sell? Who are your competitors? What are the largest risks and opportunities for your business? How is your business impacted by regulation? How do you recruit and retain talented employees? What metrics do you use to measure success? How does your company use data to gain insight into existing and potential clients? Answers to questions like these not only provide an overview of the business but a level of insight into a small business owner’s management ability, character, strategic outlook, and appetite for risk.
Be organized. Banks require substantial documentation often including CPA-compiled or reviewed statements, business tax returns, personal tax returns, personal financial statements, bank account statements, inventory listings and accounts receivable or payable aging reports. In the case of startup businesses, banks commonly require detailed business plans and financial statement projections. A willingness to provide a full financial package and provide meaningful answers to questions surrounding the financials shows that an applicant understands the metrics behind the business and is making a good faith effort to be transparent about its financial health. The quality and accuracy of financial reporting provide a lender with insight into how well-connected ownership is to the day-to-day financial management of the business and how deeply financial metrics play a role in decision making.
Sell yourself. Don’t underestimate your ability to sell yourself. Sure, by nature banks are notoriously conservative, and loan decisions are principally driven by metrics such as historical profitability, leverage, business longevity, and availability of marketable collateral. However, lending is a judgment call, and a credit decision is rarely black and white. Showing a deep commitment to your business and conveying a passionate, entrepreneurial spirit may help tip the scales in your favor. As a lender at a community bank, there have been times where I have been willing to take a chance on a startup or early-stage business because I believed strongly in management’s ability to perform.
Leverage existing relationships. If you or your family is already doing business with us, you’re a known entity, and that gives you an edge. An established account history, whether personal or business, can lend strength to your character and bankability. Furthermore, you are likely to receive the most competitive financing terms by maintaining your entire business and personal relationship together at one institution. Banks are increasingly analyzing the value of all relationship products and services when considering loan and deposit pricing opportunities. To the extent practicable, keeping everything with one institution will provide you with stronger leverage. Changing needs and business growth provide further opportunities to cement your relationship with your banker. My advice to small-business owners is to pursue your banking relationship as a long-term partnership rather than a simple one-off business transaction.
I have great admiration for small business owners. It’s not an easy job, and they are some of the most dedicated and passionate people I know. I truly enjoy establishing relationships with and helping them achieve success, both for themselves and for the benefit of our community.
Adam Lervik is a commercial banking officer at Peoples Bank with 15 years of experience in the banking industry. He earned a bachelor’s degree in finance from Western Washington University and a second bachelor’s degree in Accounting from Washington State University. Adam was born and raised in Whatcom County and lives in Bellingham with his wife and three children.