Business owners have been faced with rethinking their models as they navigate the current macro environment (a condition that involves the economy as a whole, rather than in one particular area) and are finding new ways to operate. We sat down with Brad Nott, our Market Executive, Commercial Banking, and David Jaliman, Regional Director, Atlantic Union Equipment Finance, to get their opinions on the current economic situation and offer some sound advice to business owners for 2021.
How would you describe the current economic environment?
BRAD: This recession is much different than the last one. In the last recession, we had a huge bubble in real estate and there wasn’t enough liquidity in the market. Currently, we’re in both a health crisis and a financial crisis. From a big picture perspective, our Government pulled some key levers when they reduced interest rates and pumped a lot of money into the system with stimulus checks and the Small Business Administration’s Paycheck Protection Program (PPP) loans – which got cash in the hands of small businesses who needed it. The Government and the Federal Reserve learned some things from the last crisis and got some solutions in place quickly. It’s helped us with what could have been an even larger financial downturn.
DAVID: Typically, the business cycle ebbs and flows naturally over a 10-year period. Fresh in everyone’s memory is the 2008 financial crisis. Before that, we had the 2001 dot-com bubble and the 1987 stock market crash. The pandemic has exacerbated this economic ebb and flow. I’m optimistic that the economy will begin to bounce back in 2021 with additional targeted government support for impacted businesses, and the successful rollout of an effective vaccine.
BRAD: What we’re seeing now is what I call a K-shaped recovery. Some businesses are doing very well, technology and transportation, for example. Some are hurting tremendously – those in hospitality, the restaurant industry, entertainment, sports, etc. Our clients impacted by the pandemic have had access to PPP loans, offering additional stability to weather the storm. Fortunately, we’re seeing some positive outcomes as well. Many business owners are learning how to live with this and how to adapt. Some are even growing.
How has it had an effect on businesses?
DAVID: Even before the pandemic, consumer demand had been shifting from brick-and-mortar locations to e-commerce. The businesses involved in supporting e-commerce and tech are doing well. If your business model can pivot, now is the time to be strategic and leverage creativity to succeed. Regardless of what’s going on in the macro world, business owners should always be focused on their customers’ needs and how to best support them.
BRAD: Liquidity. Liquidity. Liquidity. You have to have some reserves or access to capital – whether you’re working through headwinds to get to the other side, or to make opportunistic investments when they present themselves. Businesses should maintain access to liquidity and capital, keeping themselves in a position to do well in the future. It’s a good time to access capital. The banks have it, and they want to lend it to the right businesses who will manage it effectively.
How should business owners plan to operate moving forward from a financial point of view?
DAVID: It’s an interesting time, to say the least. Businesses should continue to stay focused on their key financial metrics. If you are tracking those metrics closely on a month-to-month basis, you will have the opportunity to make necessary adjustments before it’s too late. If you’re one of the fortunate ones who may be doing well, it might be a good time to stake a bigger claim and grow your market share. From an interest rate perspective, we are currently looking at all-time lows. If you have been putting off a larger capital improvement or investment, now is good time to lock in a low fixed-interest rate. That goes against the liquidity argument, but it is assuming you have ample cash flow to operate your business.
BRAD: Collect your receivables quickly. Don’t let them drag out. Likewise, extend your payables. Pay people slower to create more liquidity. Those are two fundamental things that are sometimes ignored, but still very important. Companies that are going to struggle through this are the ones that are over-leveraged and have too much debt. The businesses that are managed well are the ones that are going to make it to the other side.
What best practices can you share as we look towards 2021?
DAVID: It’s tough to predict the future. I think a lot of management teams are huddling up and examining their business’ strategy. They are asking themselves important questions. What new opportunities has the pandemic created? Do we need to find new customers? Can we do business with the same customers that we’ve had in the past? Is there a slight adjustment that we can make to our product to make it more viable for the new environment? Businesses that are in traditional, mature industries like manufacturing, transportation, and construction need to put on their strategic hats. Those who do will be more successful.
BRAD: There’s been a seismic shift in the landscape since the pandemic hit. Business owners need to understand how their markets have changed. Are they going to continue to get revenue from the same sources because the shift didn’t affect their business? Or, is revenue going to have to come from new and different sources in different ways? They need to ask themselves what adjustments need to be made to keep their revenue coming in.
BRAD: It is in turbulent times like these that you really need the relationship. When we evaluate loan requests from a business, we first assess the capabilities and competencies of the company’s management team. Good management teams can navigate through turbulent times – they can make the needed adjustments and help businesses adapt and change. Managers need a banker that understands their business model and where they are headed. In addition, an understanding banker is someone who can articulate that within the bank and get the things done that will ultimately help the company meet its objectives.
Why is it important to maintain a relationship with your banker?
DAVID: It’s important for both sides to be proactive and communicate regularly. When a business recognizes potential issues, it is important to communicate them to its banker. The benefit of having that established relationship is that we, as the bank, are there to support them so they can overcome any current challenges.
BRAD: A regional bank like Atlantic Union Bank is an ideal fit for so many clients in a time like this. We have the capital and the capabilities, plus we have the added advantage of being more nimble than bigger banks. You definitely want to have that strong relationship with your bank now. We are local, so we know our communities and want to see them thrive. We have the best of both worlds: a smaller relationship-oriented bank with bigger bank capabilities. For the vast majority of clients in Virginia and the surrounding states, we are very well-positioned to be a great partner to help meet their goals and objectives and to help them weather storms like the one we are in.
What makes Atlantic Union Bank different than other banks during a crisis like this?
BRAD: I’ve got several examples. One you might expect, and one you might not. We have several churches in our portfolio – it’s been amazing what they have been able to do. They’ve adjusted to online services and online giving. The level of giving has gone up from last year with many of them, which is great news. They’ve found a way to adjust their business model to deliver the Sunday service online and stay connected with their members. Another example is in technology. We have some tech companies that do installs and integration – getting Zoom lines in place, getting people working from home, keeping the networks secure, etc. We have a few who can’t even hire enough people to keep up with their new demand. They’ve adjusted their model from delivering tech solutions in the workplace, to delivering and securing tech remotely. Their business is booming.
Do either of you have a recent success story to share of a client who has adapted?
DAVID: One of my clients is a transportation company. Many of their customers are large retailers. We were concerned about how they would handle the current situation since their customers’ physical stores were closed – especially earlier on in the pandemic. The transportation company began to embrace the e-commerce needs of their customers and was able to quickly secure more warehouse space for them. Despite the pandemic, they were actually able to grow their business with other customers that had similar storage needs. Understanding your customer’s changing needs is key in every situation, but now more than ever.