Navigating Business Finance Needs for Small and Medium Businesses

Beyond initial startup, small and medium businesses often find a need to finance growing and/or sustaining their businesses and look to their local bank or credit union for help. 

Since your financial institution plays such a critical role in your business, it’s important to establish a relationship that will support you through your changing financial needs. Just as your accountant and attorney serve as “partners” in your business, able to help advise and understand your needs, your banker is no different.

Even if capital isn’t an immediate need, establishing a simple relationship first can be very valuable, such as opening a business checking or savings account, or possibly obtaining a business credit card. Getting to know your banker makes it easier to talk about different thoughts, ideas, programs, and ways you can approach financing when the need arises.

Your Financial Institution
Many business owners choose their financial partner for business based on their personal financial institutions and relationships. This could naturally be your longtime local bank or credit union — the institution that holds your home, personal or auto loans, personal savings, and/or checking accounts, and a place where the people may already be familiar. 

Whether you work with a bank or credit union is a personal choice, but it’s worth weighing your options to find what best serves your business. The structures of banks and credit unions are different, which means the tax, securities, fees, interest rates, and even the service level may be different, depending on the size of the institution.

“Typically, businesses approach a credit union because they have their primary personal accounts with a credit union, have gotten some type of loan with a credit union in the past, or have a family member, friend, or business adviser who refers them to a credit union,” says Amey Sgrignoli, the president/CEO of Belco Community Credit Union.

“Credit unions will work with a borrower and tailor a solution to the member’s needs, rather than fitting the request into a particular box.”

Community banks also provide unique value, serving as a trusted adviser.

“Local decisions, made by those who understand the community and market and what Central Pennsylvania is about, allow us to be focused on the specific needs of each business, make quicker decisions, and be nimble and flexible,” says Krista Blasser, senior business services partner, York Traditions Bank.

“We have a vested interest in helping local businesses grow because we live here too.”

What Are Your Financial Needs?
Your relationship with your financial institution should be a partnership where you identify your needs and plan, together, the best way to meet those needs.

Most community banks and credit unions offer some type of free business checking account and should be able to provide advice and recommend the best type of loan or line of credit for your organization.

You may want to finance inventory, new products, equipment, furniture, or fixtures. The need may be as simple as filling the void between billing and getting paid. Or, you may require capital to purchase a building or equipment that will have a long life, such as medical equipment (e.g., x-ray machines, etc.).

Special Programs
When a business’s finances don’t support conventional financing, small- and medium-sized businesses may be eligible to take advantage of special government programs. For example, Small Business Administration loans help offset the risk to lending institutions:

SBA 7(a) program – This loan is partially guaranteed by the government, which means there’s less risk to the bank/institution. The institution lends 100 percent of the money, and in the event of a default, the government steps in.

On the business side, this is a good option for a younger business and helps establish credit. There are a number of 7(a) programs and subset programs. Rates and terms vary.

SBA 504 program – This loan is more of a direct loan with the government; it works in tandem with a bank loan, so there are actually two loans, and the bank and government share in the risk.

These loans can decrease the amount needed at close, and the SBA portion financed provides for fixed rates up to 20 years. This program can be used for a business’s expanding needs.

Although there are no special financial programs for women-owned businesses, the Office of Women’s Business Ownership is a national program that can help female entrepreneurs coordinate with SBA programs and also help with business training, counseling, and navigating federal contracts. 

Partnering with a Financial Institution
“Just as your business works closely or partners with legal counsel, an accountant, or business mentor, it’s best to start early to establish a partner for your financial needs — someone who can help with short- and long-term planning,” says Blasser.

Once you’ve met with your financial partner, it’s important to be willing to provide any information requested in a timely fashion. Be open and honest to show them that you are a good business for them to partner with, too. Explain your needs, and let them recommend a product or solution that is the best fit for you.