Banking & Finance Quarterly: Mood: Optimistic

Business owners have weathered a lot of turmoil since 2020, but many financial experts agree that a large percentage of them are still looking to grow their enterprises in the year ahead. There have been some changes in the lending landscape since the start of the pandemic, and some caution is warranted in the future, but executives at several Los Angeles banks are optimistic about the coming months.

Noor Menai, President & CEO, CTBC Bank USA
Noor Menai, president and chief executive of CTBC Bank USA.

According to a recent Small Business Credit Survey issued in May by the 12 Federal Reserve banks, 85% of employer firms experienced financial challenges in the last 12 months, up four percentage points since 2020 and nearly 20 points since 2019.

Regardless of the hardships, however, a 2022 small business-owner report by Bank of America Corp. indicated that about 70% of business owners plan to obtain funding for their business in the next 12 months, despite concerns about inflation, commodity prices and the supply chain.

In Los Angeles County in the first half of 2022, Bank of America loaned $1.4 billion to small businesses – firms with less than $5 million in revenue – and $9.8 billion to commercial businesses – firms with revenue between $5 million and $2 billion.

“We’re seeing very positive lending rates and approval,” Angela Antonio, small business region executive for Los Angeles with Bank of America, said. “A significant percentage of small businesses are currently looking to expand.”

Anthony Kim, Executive VP and Chief Banking Officer of Hanmi Bank
Anthony Kim, Hanmi Bank executive vice president and chief lending officer.

Some 72% of business owners say ownership has become harder over the past decade due to a more competitive business landscape, challenges reaching new customers, a more competitive labor market and ecommerce corporations impacting sales.

 

Relationships matter more

In the BofA report, almost 80% of business owners said their business was negatively affected by the pandemic, with most noting negative impacts to sales, products and inventory.

“A lot of businesses had to decide if they wanted to remain open,” Richard Raffetto, president of downtown-based City National Bank, told the Business Journal. “And many clients learned where they stood with their bank.”
“Relationships are more important than ever,” he said. “Knowing your banker has become very important.”

Having a strong connection to a bank played out during the early months of the pandemic when financial partners were able to quickly service existing clients through the Paycheck Protection Program (PPP), the Small Business Administration-backed loan program that helped companies keep their workforce employed at the peak of the pandemic.

While business owners who didn’t have strong ties to their bank were eventually able to access funds, firms with solid banking relationships were likely less stressed during the loan process.

“We turned crisis into opportunity,” said Anthony Kim, executive vice president and chief lending officer at Koreatown-based Hanmi Bank. Kim noted that the PPP loans made it to customers in a timely fashion, which encouraged them to bring more business to the bank and refer colleagues. As a result, “referrals increased and loan demand also increased.”

As the pandemic months wore on, banks also bolstered their fintech options, making online banking easier and accessible to community bank customers. But while financial relationships can now be built remotely, Joe Yurosek, regional president of Western markets at Fifth Third Bank, observed that in-person meetings are still as valuable as they were pre-pandemic.

“We are meeting the client where they want to be met,” Yurosek said. “The in-person meeting is not going away, but the frequency could be replaced with remote opportunities.”

 

Update your business plan

For owners, there may be several aspects of their business plans that need special attention in this new era.
“You have to go down to the next level of detail,” said Noor Menai, president and chief executive of CTBC Bank Corp., USA. But he says the credit is still out there even as interest rates go up.

“We ask about remote strategy,” Yurosek said. “And with supply chain disruptions, we look at alternative supply chain options.”
At places like Fifth Third, potential borrowers will discuss emergency contingency plans in detail with their financial partner and benefit by placing added emphasis on working capital needs and inventory investments, said Kim investments.

Kim noted that financial planners at his bank are paying particular attention to loan customers’ liquidity status and secondary payment sources.

 

Sectors

More than 60% of owners surveyed recently told Bank of America that their business has fully or partially recovered from the pandemic, with more than half citing increased consumer spending as a factor that will help or has helped their business recover.

Loans for businesses may largely depend on the sector. Menai observed that industries that he’s seen doing well include ecommerce and multifamily and industrial real estate.
“We’re going to see a lot of impacted sectors healing quickly,” Yurosek confirmed. “Consumer travel is booming, although business travel is lagging. (We’re) seeing weekday use of hotels and flights slow.”

Several executives cited hospitality as one sector that has been slow to rebound. Per the SBCS 2022 survey, half of the firms in the leisure and hospitality industry reported a large negative effect from the pandemic, compared to only 26% of manufacturing firms.

The SBCS survey also noted that firms owned by people of color “were most likely to be in fair or poor financial condition.” The survey found that 76% of Black-owned businesses categorized themselves this way, compared to 55% of white-owned businesses.

To help some entrepreneurs, banks are developing programs in certain sectors to bolster access. For example, Bank of America is launching a pilot program in which female and minority borrowers can receive a grant for a down payment on commercial real estate.
More than half of business owners in the BofA report are working to shield themselves from future risks following the pandemic months.

Some 37% of respondents said they were focused more on digital sales, 36% had adopted new technology and 31% diversified their revenue streams.
For their part, lenders hope they will continue to play a positive role for small business borrowers.

“We got to wear the white hat this time as opposed to how bankers were perceived after the 2008 financial crisis,” said Raffetto.
“Our government stepped in and the end of the world didn’t come,” said Menai.

“Community banks will continue to be the last mile for borrowers.“So much hasn’t changed,” said Yurosek. “Although we went through a disruption, we proved we can do it on a temporary basis.”

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