As the national economy works to right itself, many business owners find themselves in the position of struggling to stay in business. With credit harder to come by, surely this isn’t the time to think about growing your business. Or is it?
“I think it’s more challenging, but any growth you achieve is ultimately going to be more sustainable,” says Chris Harless, senior business relationship manager at Wells Fargo Bank, N.A. “The key is to have a solid business plan.”
Smart Business talked to Harless about opportunities for business owners to expand their companies and the resources available to help make them successful.
What are the hurdles to growing business in the current environment?
The biggest challenge of growing the business in any capacity is whether you can handle the growth yourself. If you need to increase your inventory and add employees, how are you going to pay for it? Are your receivables getting stretched up to 60 days? Are your vendors asking for cash up front? If so, how will you pay for it? Will it put a huge demand on your cash? If you can handle that, then it’s a great time to grow, because your competitors may not be able to follow.
Being prepared and knowing your market are essential. If you can hit the price point and provide the service your customers and prospects need, it’s growth that you can sustain. If you get the business now, imagine how good things will be when the economy turns around.
What kinds of resources are available to help businesses grow?
Right now is the best time to work with your banker and financial advisers to make sure you have a good business plan in place, and evaluate the necessary resources to enact that plan. It doesn’t matter how hard you go at it, if your plan is flawed, or underfunded, then it’s not going to work.
Your business has multiple options for its different stages of growth. Some of the options include working capital lines of credit, real estate loans, equipment lines and loans, and U.S. Small Business Administration (SBA) guaranteed lines and loans. The American Recovery and Reinvestment Act (Stimulus Bill) has temporarily eliminated the SBA Guaranty Fee from its flagship 7(a) loan program. The Stimulus Bill also temporarily increases the guaranty percentage to 90 percent for loans up to $1.6 million.
This temporary reduction in the SBA Guaranty Fee is great news because it allows you to now save up to 2.5 percent of the loan amount in the payment of loan fees, take advantage of growth opportunities without depleting your capital, and keep your capital where it belongs — in your business.
Overall, what role does the SBA play with small businesses?
Since Congress created the SBA in 1953, business owners have taken advantage of SBA guaranteed loan programs to meet their business financing needs to fund real estate purchases to house business operations, construction, renovation or lease-hold improvements, furniture, fixtures, machinery, inventory and working capital. The benefits of participating in the SBA loan programs typically include lower down payments, longer maturities and more flexible terms.
In addition to financing, the SBA provides small businesses with other quality programs, such as its Small Business Development Centers and SCORE program, that provide training, counseling, and other resources. Additionally, there are other agencies like the local economic development council, community development corporations (CDC) and local colleges that assist business owners in developing business plans and preparing them so that they can address issues they may encounter when attempting to gain financing from their bankers. These agencies and programs can also provide the small business owners with a strong foundation upon which to grow their business.
What else should a potential business owner do before starting a new business?
You have to do your research so that you understand the market completely. You may have a great idea but if it’s just a tiny niche in a big market then you really have to understand if there will be sufficient demand for your product or service.
You have to be adequately capitalized. Too many times we see people with a good idea and they start working without proper funding in place, and when they realize they need more money, it’s too late. It’s difficult to get financing once you’ve started because you are not in a position to pay that money back. A solid plan will ensure that your business is structured properly and you have sufficient working capital in place.
Does the size of the business influence whether the business will be able to grow?
Growth is not based on size; it’s based on management. Some of the companies that you see failing right now had a faulty plan. It may have been a good plan at one time but as the current recession began, management didn’t change their plan or pay attention to the market. So if the business plan is faulty the business won’t grow, regardless of the size.
Part of effective management is surrounding yourself with a strong team. A proactive adviser will identify products and services to help you grow your business. This will allow you additional time to seek future growth opportunities.
Chris Harless is a senior business relationship manager at Wells Fargo Bank, N.A. Reach him at [email protected] or (281) 290-6086.
