How Do Financial Institutions Help Businesses?

Bankers can play an important role in helping ventures grow, but many entrepreneurs — especially owners of relatively small businesses — seemingly aren't taking advantage of the knowledge and expertise of their financial institution.

That's one conclusion of the City National Small Business Report, which asked 1,000 entrepreneurs and small business owners across the United States what impact their financial institutions made in helping their companies grow.

Overall, nearly 24 percent said their financial institutions played no role at all, and 38 percent said they received little or very little help from their financial institutions in helping their companies grow.

Only 39 percent said their banks had played somewhat of a role or a large role in their growth.

The survey indicated a significant difference, though, between businesses on the lower end of the revenue range and those generating at least $3 million: A greater percentage of the larger companies had relied on financial institutions to help fuel their growth.

Specifically, more than half of the under-$3 million companies said their financial institution had had zero or very little impact on their growth.

In contrast, more than half of the companies generating $3 million or more in annual revenue reported that their financial institutions had played somewhat or a large part in helping them grow.

It's evident that successful businesses see the value in working with their financial institution. So why aren't more companies collaborating with their banks earlier on to expedite their growth?

 

Understanding Your Bank's Role in Your Business Growth

Companies that don't leverage the knowledge of a banker "probably don't understand how a bank can support them and assist them in their growth plan," said David Cameron, head of business banking at City National.

Robert Villaseñor, a senior relationship manager at City National, has seen this first hand from his vantage point in City National's WeWork's flagship Los Angeles location, where he is surrounded by entrepreneurs working on getting young companies off the ground.

"The understanding of what a banker can do for you — I think that's the biggest hurdle, because that's the biggest question I get," Villaseñor said. In addition, many small business owners today may be mistrusting of banks, in part because of the financial crisis and recent scandals at major financial institutions, he said.

Entrepreneurs should realize that the right bank can serve as a knowledgeable, trusted advisor and help their businesses grow, particularly banks like City National that offer relationship managers who work with clients to provide personal service, Villaseñor said.

A small business-oriented bank isn't laser-focused on how much money a firm has to deposit, he said, "because they're there to help you move the needle and grow with you."

Part of Villaseñor's job entails teaching entrepreneurs the role a banker can play in helping them sustain and expand their ventures. “I'm sitting down with the client, assuring that they understand the expectations that the bank has for them and those that they should have for the bank," he said.

Business owners should feel confident in calling their banker, sharing their goals and asking for guidance. For instance, Villasenor gets questions about the best time in a company's life cycle to apply for a loan or line of credit, or when to buy a studio or office building.

A banker who is committed to helping your business succeed can provide you with an objective opinion when you must make crucial business decisions that impact your company's future - and your current bottom line.

“Their banker should be the first one they think of whenever a decision involving finances comes up," Villaseñor said.

Another key component of a strong relationship with your banker is their ability to identify creative solutions to the challenges your business is facing.

For example, our survey respondents identified the top three challenges they currently experience as competition, revenue and access to skilled labor. Small business bankers can help business owners identify ways to address those challenges and more.

One option might be a bridge loan, for example, that could facilitate the hiring of more experienced staff or help a company expand its sales onto a major platform like Amazon, Cameron said, or take other steps to stand apart from the competition.

“A banker can be a trusted advisor. They can bring broad experience across multiple industries and familiarity in working with very successful entrepreneurs and their companies. Those experiences can be shared with smaller companies as they expand," said Cameron.

The most successful entrepreneurs surveyed — those who have grown their revenue beyond the $3 million mark and demonstrated year-over-year growth — recognized that they couldn't rely solely on their own ideas and knowledge to grow their company. Instead, they formed strategic partnerships with businesses and individuals that had the experience and expertise to help them get to the next level.