Today’s high interest rate environment does not mean business owners have to cancel or postpone planned expansions or projects, but it does require more and earlier planning to secure financing. It means there is a high possibility.
Most banks are still making loans, but with tight liquidity across the industry, gone are the days when the goal was simply to close any deal. Banks are very strategic and make lending decisions based on relationships rather than transactions. And, as you might imagine, this also means that financing decisions can take longer than many businesses have become accustomed to.
Business owners and people considering personal banking should start the planning process by preparing the right questions for their financial institution, and they should find a banker who will ask them the right questions. there is.
You should ask your bank:
- Does the bank have the ability to scale with my business?
- What is the financial institution’s risk tolerance?
- Does the balance sheet account for further loan increases?
- What is a trust culture?
- What is this bank’s loan package?
The bank will likely ask:
- Is there a debt schedule for all contingent liabilities?
- Is there a risk that the portfolio will be repriced?
- Do you have a succession plan for your business?
- What is the strategy for comparing active income to passive income?
- Are you maximizing the return on your business funds?
The answers to some of these questions will inform how lenders navigate the lending process in this high interest rate environment.
As interest rates have remained low for the past 15 years, business owners have become accustomed to an era of relative ease in financing. But with interest rates rising to their highest levels in nearly 20 years, these companies need to prepare for a changing lending environment.
And it’s not just business owners who need to change their strategies, but lenders as well.
Traditionally, it was very common for banks to compete for commercial loans primarily based on interest rates and terms. It’s no longer a reality. As financial advisors, bankers leverage their complete relationship knowledge with their customers to provide them with the right guidance to not only close their next loan, but also to ensure that their corporate customers are financially healthy and secure in their various business and We need to help them cope with the economic scenario.
For example, if your business has a high risk of portfolio price changes, you can expect a slightly higher interest rate on your loan package. This means higher loan payments and impacts cash flow, so aggressive expansion plans may have to wait.
If you’re a business owner or individual with plans for growth and expansion, you need a bank that can accommodate your changing financial needs. Scalability allows a bank’s services to grow with you, so when you start doing business with a bank, you know that you can complete your plans with that bank rather than future piecemeal funding needs through multiple institutions. You need to keep it. If your current bank is not scalable, you should be prepared to change relationships before seeking financing. Even if you have a good relationship with them, banks cannot lend to you if they don’t have them. For example, Arvest still has sufficient lending capacity and liquidity, while other banks may not.
Business owners need a higher level of service and a banking partner who understands the economics with the vision to assess, plan, and pivot together to achieve their business goals.
Editor’s note: Joe Verser is a commercial loan manager at Arvest Bank in Jonesboro. The opinions expressed are those of the author.