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Window to Financing Open for Small to Mid Sized Businesses

Share current LOB: SmallBusiness
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After years where business caution dominated planning, increasing optimism is allowing many businesses to open their minds and their business plans to the idea of additional growth financing. The myriad ways companies are planning to put credit to work extends from establishing credit history and organizing financials to an array of investment opportunities for growth, profitability and future business development. Similarly, a peek inside the window to credit accessibility reveals that companies are realizing that financing is available through a variety of options. 

Confidence about Access is Up

According to recent SunTrust research of business leaders, two-thirds to three-quarters of businesses feel it will be easy to access the capital they need to reach their 2014 goals, and only one-in-ten are anxious about the prospect of access to capital.

Business confidence in accessing capital appears to start with internal confidence. Nearly half of the companies with $2 million to $150 million in revenue say they look to reinvest earnings as the first approach for financing growth. For nearly one-third of businesses, the option to increase use of existing loans or lines of credit runs a close second.

Not surprisingly, larger companies ($10 - $150 million) are a little more likely to indicate turning to equity financing (34 percent) or new loans and lines of credit (36 percent), but still a quarter of businesses in the smaller $2-$10 million revenue segment point to accessing equity financing or new loans. Signs of optimism about capital abound as leaders are coming to the table with opportunities identified while garnering the financial tools to seize them. 

Confidence about Own Performance Correlates with Plans to Pursue Access

SunTrust research shows that nearly half of businesses are feeling more positive about the economy at large, but two-thirds express confidence in their own position within the context of their industry. When looking specifically at businesses that are confident in their ability to achieve their customer satisfaction and market share goals, SunTrust  finds they are much more likely to have plans to access a variety of outside financing sources. For these businesses, their confidence to open the window to financing appears driven by the payoffs they expect to receive from cautious planning and intentional investments in customer development and growth.

Plan to increase funding in 2014

Financial Confidence a Paradoxical Strategy? Or Part of Building Financial Health?

Putting credit to work is seen as a productive sign of a healthy company that is investing in and building its future.  Forward-focused executives are strengthening their financial confidence by ensuring a healthy level of working credit is available.

While willing to access and use credit, savvy businesses are prudent in their use of capital. While they are intentionally moving forward to finance their futures, these businesses are looking for the right level of financing and risk as they shore up their overall financial health and boost their confidence in their finances.

Pursuing Multiple Options

While lines of credit and equity financing are the most well known, best practices suggest that executives should not overlook options when it comes to financing. A comprehensive evaluation and application of financing options can prove beneficial and can result in a much healthier plan for accomplishing business goals long term. Leading businesses will approach their financing plans with the same intention and strategic caution that they have used to plan their return to the credit market. 

The vast majority (eighty-three percent) of businesses with revenues in the $10 - $250 million range, indicate using some form of credit or financing in 2014. While lines and letters of credit are still the most common form, businesses confident in their customer satisfaction levels and market share are even more likely to consider a variety of financing options. In particular, commercial mortgages stands out as a favored financing approach for businesses.

In the same way that executives look for the right fit when hiring new employees or choosing a new location, they should also match the financing needs to financing options to create a strong fit.  For mid-sized companies, SunTrust discusses financing opportunities in Business Credit Tips:  Financing for your Company.  For small businesses, SunTrust outlines financing options in Identify the Best Forms of Credit for Your Business.

By linking the fit of each of these vehicles to specific financing needs, executives can craft a financing plan to optimize business goals and provide needed capital in a variety of business areas.

Next Steps

The first step to tapping into sources of capital is planning. Assemble your financial advisors and spend time with these questions.

  • If you had greater access to capital, how would you put it to work?  What are your best opportunities for achieving your business goals?
  • What drives your current financial confidence? How does your current use of credit and/or financing vehicles affect your confidence? How might you improve it?
  • What financing vehicles do you currently access? Consider the fit each might have with your capital needs.

Armed with your list of possible investments and an understanding of your financial confidence, sit down with your SunTrust banker to put together the financial roadmap that will help you optimize your options.

About the Research: SunTrust conducts a quarterly nationwide survey on business topics relevant to its small and mid-sized clients. This research was conducted in March 2014 and surveyed 249 small businesses ($2mn to $9.99mn in annual revenue) and 251 mid-sized businesses ($10mn to $150mn in annual revenue.)

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.