Was your last financing experience like “Strangers in the Night?” Or, was it “the beginning of a beautiful friendship?”
A business loan can be a brief transaction, with parties going their separate ways. However, there are great benefits to an ongoing financing relationship with your lender.
Michael McElroy, an account manager with Stearns Bank, discussed why you should consider ongoing financing with a trusted lender — with multiple loans, established process and track record of successful repayment.
Financing Is Easier And Faster
When you have an ongoing financing relationship, the loan application and approval process will be more efficient.
The lender knows your business operations, and likely has retained records from the last round of financing. You already are in the lender’s system as a trusted customer who has made payments on time. This familiarity and experience can result in fast, hassle-free loan approval.
With an efficient financing process, a small business can promptly take advantage of marketplace trends and opportunities.
You may need new equipment to produce a new product line, or additional capacity to meet growing demand. With an established lender relationship, the time from initial loan application to receiving funds can be compressed into hours rather than days.
“An ongoing financing relationship enables companies to take advantage of opportunities that come up,” McElroy says.
“Spending less time securing the necessary financing leaves more time to close the deal on a new opportunity.”
Conserve Cash And Working Capital
Cash is always high in demand and short on supply. Easy access to financing enables you to conserve cash for everyday expenses and unexpected problems.
Ongoing financing relationships enable a business to conserve cash while investing in capital improvements. The result is a strong balance sheet which leads to healthy growth and stability in up or down markets.
“Maintaining a strong working capital base gives more margin for error while a business is growing,” McElroy says.
A lender who works with you through several business cycles and rounds of financing develops a deep understanding of your business.
This enables the lender to anticipate problems that could affect your sales or bottom line. Rather than a “one and done” transaction, the lender can provide ongoing support and guidance. Working across many business customers and industries, the lender’s perspective can be valuable.
Custom Solutions That Suit You
Analysis of your business cycles and market trends enables the lender to offer customized financing solutions. These include payment schedules that that provide relief during difficult times or match up better with an uneven revenue stream.
“In an ongoing financing relationship, the lender knows more about your business and its individual needs,” McElroy says. “The more the lender knows, the more custom financing options they can provide to help grow the business.”
An enduring, long-term relationship with your lender can be a competitive advantage. Especially for industries with shifting consumer preferences, technology and equipment upgrades and sales growth. A path to fast financing enables the business to respond quickly to these challenges, ahead of the competition.
“You may have a small machine that is maxed out and inefficient. But when you get financing for a larger machine better suited for the work, you’ll save money and enhance your competitiveness,” McElroy says.
Tax Benefits And Credit Score
Many small businesses take advantage of the Section 179 tax deduction for new and used commercial equipment purchases. The tax reform bill changed several features of this deduction. You should consult with your accountant to take full advantage of this benefit.
Working with your current lender, you can be confident that commercial equipment financing will be completed on time to meet Section 179 deadlines. Since these decisions often occur late in the year, a fast and efficient loan process is critical. A mistake or delay in financing can cause you to miss year-end targets and forfeit the tax benefit.
Families build good credit by opening accounts and making on-time payment of their mortgage, credit card balances and consumer loans. Accordingly, your business establishes solid credit with a series of successful equipment loans and repayment. Working with the same lender results in an efficient process built on repetition and familiarity.
“Having a steady history of using credit builds a strong credit score,” McElroy says. “But having a good score is only one factor. A history of borrowing smaller amounts with good payment history can help you when you want to make a bigger purchase such as when you’re doing commercial equipment financing.”