What does it mean to have a "bankable" business in 2023

In my work at River City Capital Investment , I see it almost daily. Great, hardworking people who have a dream of starting their own business. For some, it's a lifestyle play. They want to leave or supplement their 9 to 5 job. They want to go on that family vacation. They want to pay down that pesky student loans or that painful auto loan. More and more, as the economy has evolved in a post pandemic, post George Floyd video world people are turning to alternative small business lenders to fill in the gaps left by traditional banks to get the startup capital necessary for creating systems that automate their business. To hire those key employee teammates. To buy that equipment, or that building. For that working capital, or to fulfill that government contract they won. I love seeing it! However, there is something missing.

As my over 19 year banking career that has led me to where I am today, if there is anything I've learned is that the need for business owners to elevate their thinking as well as be able to "read the room" when it comes to the macro and micro economic environment. In addition, the funding that's available out here is so vast even in a rising interest rate climate. As many enter the world of business ownership, understanding how to make your business "bankable" has become increasing critical to acquiring this funding. More on this later. Here are a few relevant statistics to help you wrap your mind around this concept:

• The total number of banks decreased by 239 between June 2018 and June 2019 to 5,303 banks. During the same period, the number of banks with assets under $1 billion decreased by 261 to 4,511 banks. (Source: FDIC)?
• Per the Small Business Administration (SBA), alternative lenders tend to have the highest small business lending approval rates. As of 2021, the rates are hovering at around 24.5%. This is a lot higher than the approval rates of credit unions, which is only 20.5%. (Source: SBA)
• In the second quarter of 2021, only 13.6% of loan requests at big banks were approved, leaving 86.4% disappointed and looking for alternative solutions. (Source: SBA)

I bet I can guess what you're thinking. Either one of two things......."Duh Ron, tell me something new!" or "Why Ron with all of the apparent money floating around and new businesses being created are lenders seemingly struggling to get the money out to the people, especially those underserved by banks to begin with?!" If you're thinking the former, point well taken. You won't get an argument from me there! I lived it for over 19 years remember. However if you're thinking the latter, let's explore that further. The big banks in my opinion serve their best role as a supporter of alternative lenders such as my organization River City Capital here in Memphis, TN. The reason is no one can or should be everything to everyone. Big banks serve corporations and individual consumers best through technology utilization to make transactions efficient and at a lower cost. They in general do not operate at a granular level to support small business owners with the funding they need, especially when those applicants don't fit the cookie cutter model.

Alternative lenders, who rose to prominence after the 2008 Occupy Wall Street recession days, are able to step in and fill in the gap left by big banks. These include fintechs, CDFIs (Community Development Financial Institutions), micro lenders, credit unions, community banks, MDIs (Minority Deposit Institutions), and more. They in general operate in the community and are more invested at a grassroots level. In my opinion, this is where the future of banks will reside!

Now that we've quickly addressed the lenders, let's quickly address small business owners. Remember when I mentioned the word "bankable" earlier? This is where there is a HUGE opportunity! What does it mean to be bankable?

A bankable business is one that has a solid financial track record, a clear and achievable business plan, a stable and predictable cash flow, and a management team with relevant industry experience. A bankable business is one that has a strong credit score, a well-organized and detailed business plan, and a history of profitability. Why is being bankable is important for securing financing and grants? Being bankable is important because it demonstrates to lenders and investors that your business is a reliable and profitable investment.?The lenders of the future will need to help small business owners, especially those in their first 5 years in business, to reach this level of bankability. Here are the key areas:

• Having clear, crisp, accurate financial documents that the owner understands and makes key business decisions from the information in understanding the financial health of the company.
• Restoring their credit profiles such that they demonstrate the ability to showcase a status of lower financing risk, and to lower the cost of borrowing money
• Utilize the business plan not simply as a document for checking the box with the lender, but as their guide GPS. It's a living document, meaning it should adapt as the key contributors take action, experience results, and as the business landscape evolves. Business owners should not write or have someone write a plan of fluff with unsubstantiated charts and graphs! Just like the GPS on your phone or tablet, it will only talk you through the directions when you begin taking action and moving! Same with the business plan.

In 2023, I challenge both lenders at all levels and small business owners to collaborate effectively to improve the bankable status of small businesses. They serve as the backbone of the U.S. economy as they create millions of jobs. For many of them to scale up, the more bankable they become the more they'll connect with the funding they need. So let's lend a hand......and even more money!

Choose your attitude and GO!

Ron

Ron serves as President of River City Capital in Memphis, TN. Since 2010 RCC, an affiliate of Community LIFT (communitylift.org) and certified CDFI nonprofit organization, has existed with a mission to accelerate shared prosperity and revitalization in underserved communities through the provision of capital in Memphis and Shelby County. You can support the work of RCC by visiting rivercitycapital.org and making a financial donation. You can also support Ron by becoming a member of ronbrooks.club! His ebook "Your Bankable Business" is available FREE there as well!