Resources for Startups or Growing Businesses

The first quarter of the year is a great time to think about starting a business or growing your business. As entrepreneurs think about their businesses, often the first task that needs to be addressed is funding — whether it’s for new office space, investment in equipment, operating cash, payroll, marketing, or any other aspect of running a business.

Here is some guidance on that topic.

1. Use Central New York’s great resources for entrepreneurs. We work closely with and refer many small-business customers to work with the Onondaga Small Business Development Center at Onondaga Community College, as well as SCORE. Even before an individual goes to a bank to discuss a request for startup financing, these offices can help entrepreneurs and current business owners to understand requirements, compile information and develop necessary documents, identify available resources, and even offer some of their own financing programs. 

2. Develop a thorough business plan. Because new businesses don’t have the benefit of actual financial performance to demonstrate the potential for future success, it is important to have a business plan to guide conversations with bankers. A three to five-year plan with information on the business owner’s experience, personal financial information, anticipated business expenses, and rationale to explain expectations for earning revenue is recommended. This plan should also demonstrate the business owner’s understanding of both the proposed product and the market, as well as how he or she plans to take advantage of any trends or untapped opportunities.

3. Be prepared to spend time with the bank’s people, so that they can really understand your business. This allows them to provide the best recommendations and products to help the business be successful in the long-term.

4. Ask about Small Business Administration (SBA) resources, and even USDA (U.S. Department of Agriculture) resources. 

5. You typically need to contribute some of your own money (project equity) in order to secure bank financing. Banks generally do not finance the entire operations of a business, so startup companies should plan to raise capital or invest their own money for at least 20 percent of startup costs such as equipment purchases, fit up of the facility, and the projected cash flow needed to cover operations until the business becomes cash-flow positive. This capital infusion may be used to cover operating expenses, but is often used as the down payment on physical asset purchases. The trick is to find the right balance between debt (the bank loan) and equity (the owner’s capital). The more capital that an entrepreneur can raise or contribute, the better it will look to the bank that is reviewing the application for financing.

6. One of the most important things that an individual can do when preparing to ask for financing is take time to build his or her credit profile by staying on top of any existing loan payments, while saving as much money as possible for the personal investment in the business.

These tips should help entrepreneurs get the most out of their discussions with their banker, but this is certainly not intended to replace that discussion. It is important that the entire banking team, from loan officers to financial planners, get to know the individual and their organization, including where the company is in the business life cycle and what its overall industry looks like now, as well as trends for the future. This allows the bank to not only support a company’s operations, but also the business leader’s aspirations.

This is similar to how a professional mentor might be identified for you and your business, and how that relationship forms. It’s not overnight, but rather it takes time to get to know each other. And you recognize that someone has your best interests in mind, as well as knowledgeable and relevant advice to offer you.

This relationship is equally important after a business has been operating for several years, especially when the business owner starts thinking about growth. The smoothest transactions occur when the customer and the bank have an existing relationship, because the bank is already aware of how the business has been performing and its cash-flow cycle. Financing requests for growth initiatives often have the benefit of citing the proven financial performance of the business, and sometimes have assets to leverage for the requested funding. If a longer-term relationship has not yet been established between the business owner and the bank, then the business owner should be prepared to proactively explain why a past year may have been unusually successful or unsuccessful.

One of the most noticeable ways that a bank is able to create this type of personal relationship is by employing experienced bankers who have years of living and working in the area of their customers. 

Proper planning now for a minimum of the first two years of operation of a new business is critical to best manage the financial success of a startup, from the loan-payment structure to being able to invest in growth. The same approach to long-term planning is important for existing businesses that are looking to invest in growth efforts. And whether you have been in business for several years or just completed your first quarter, it’s always important take some time to review your business’s financial needs and options.

Every organization’s situation is different. That’s why it is critical to work with a banking team that understands your business. By connecting with these types of commercial-banking specialists, business owners will benefit from an experienced and dedicated team that can help to identify the most useful bank products and services.           

Jonathan Spilka is VP and commercial relationship manager at NBT Bank, based at its Syracuse Financial Center at 120 Madison St., He has spent nearly two decades in the Central New York banking industry.

Author’s note: The opinions expressed in the article belong to the contributing author, and anyone considering any investments or financing should seek advice from an independent third party such as their financial planner or tax advisor.