As high street companies continue to stage a post-pandemic comeback, they face the triple threat of supply chain headwinds, labor restrictions and historic inflation. For some, borrowing to invest, grow, or just stay afloat is paramount.
Data from Goldman Sachs’ Small Businesses on the Brink survey of 10,000 Small Business Voices shows that 86% of owners believe broader economic trends are having a negative impact on business. Nearly 30% of owners expect to take out a line of credit or loan for their business this year, and 31% say they are very confident their business will be able to access capital. However, black-owned small businesses said they expect a higher credit rate of 48% with less confidence in their ability to access capital (19%). The survey, released in late January, included responses from more than 1,400 small business owners, including 225 black-owned businesses.
Business owner Letha Pugh has experience funding inequalities before the toll of the pandemic. Pugh owns Bake Me Happy, a wholesale and retail gluten-free bakery and coffee shop. When Pugh initially looked for capital for the Columbus, Ohio-based company in 2013, she said she was devastated.
“Just having an account with a bank is not a relationship with a bank. We were offered an SBA 7(a) loan for a piece of equipment, specifically for that piece of equipment,” said Pugh. “There was no discussion about working capital and things like that, I think that’s the split.”
Letha Pugh and her wife Wendy own Bake Me Happy in Columbus, Ohio. Pugh has spent years building banking relationships and a network to continue growing the business.
Courtesy: Letha Pugh
Pugh and her wife Wendy turned to her savings to get started, and in recent years, Pugh said, the focus has been on building a small business support network. She draws on local resources around the city, attends webinars, and participates in the Goldman Sachs 10,000 Small Business Voices program, as well as courses offered by the National Minority Supplier Development Council and the National Restaurant Association. As the business grew, the banks tried to partner with the bakery. A relationship with the State Bank in Dublin, Ohio, helped the bakery gain early access to Paycheck Protection Program loans when other small businesses were shutting down.
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“I think of getting a banking relationship as early as possible, even if it’s a $5,000 line of credit or access to credit just so you can pick up the phone and get in touch… I think of being able Reaching out to a person at the bank who knows and understands you makes a huge difference,” she said.
The pandemic has highlighted inequities in lending, with minority-owned companies being funded from programs like the PPP at lower interest rates than white counterparts. The Federal Reserve’s Small Business Credit Survey 2021 Report on Firms Owned by People of Color showed that even among companies with good credit ratings, black-owned companies were half as likely as white-owned companies, at 24%, to get all the funding they wanted. versus 48% of borrowers.
Community banks have become a lifeline for smaller businesses during the pandemic. Winnie Sun, chief executive of Sun Group Wealth Partners, said that prioritizing service quality over bank size is crucial for companies looking to establish banking relationships. Start with a personal or commercial banker and schedule multiple meetings to ensure that person is a good fit for your business and goals.
“It’s really important to remember that the relationship you have with your bank is a two-way street. They want to do business with you. But you also have the option to decide whether you want to do business with them. And that’s the key,” Sun said.
Through perseverance, Pugh has continued to expand the bakery, even in the face of the many challenges of the pandemic. Sales are up 40% from 2019, but procurement costs are also up 25%. Pugh just completed a building on an SBA 504 loan last month after the bakery lost its lease and doubled the rent. The new location is scheduled to open in June or July.
“We sat down and decided that if we build a space and renovate that space for the business owner or the building owner and pay their property taxes, we’re not going to lose any more money. … Let’s take advantage of owning the building.” She said.
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