255 million worth

June 25, 2011
| By Pete Daly |
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Hardly anybody goes laughing all the way to the bank these days, but the West Michigan Region of the Michigan Small Business and Technology Development Center, based at Grand Valley State University, helped a lot of small businesses head to the bank last year with an increased chance of success.

With advice from the MI-SBTDC, small businesses in Kent, Ottawa and Muskegon counties were able to borrow more than $25.5 million last year, according to Dante Villarreal, director of the West Michigan Region.

The West Michigan Region also provided free counseling to 765 businesses, and helped 64 companies get started. The total estimated number of jobs created as a result was 371.

Early this year, the federal Small Business Administration announced a series of grants to Small Business Development Centers in Michigan and other states to help entrepreneurs start or grow their businesses and create jobs. The grants are part of the Small Business Jobs Act of 2010 signed into law by President Obama in September. The statewide organization of SBTDCs in Michigan, which is headquartered at GVSU under the direction of Carol Lopucki, received the largest of the grants and used it to hire nine consultants with professional expertise in finance, who will work across SBTDC offices across the state of Michigan.

In addition to an on-staff financial counselor, the West Michigan Region also has launched a process called Information Based Planning, which incorporates market research with an implementation plan.

“Otherwise, it’s just a stack of data,” said Villarreal, referring to a marketing plan that doesn’t include an implementation plan. The market information is “great, but if you don’t do anything about it, there’s no value there. Or if you don’t know how to incorporate that (data) in your business strategy, it really falls short of being of any value.”

American banks and American businesses in general came through the wringer of the Great Recession with profound changes in place, changes that make access to capital much more restricted. Asset values plunged, leaving a lot of banks holding devalued collateral, and some banks that were headed to failure have been taken over by government regulators and reorganized. The government, while being called upon to bail out many banks, also was accused of ignoring banking practices that allegedly led to the financial crisis. The result is much stricter regulation of the banks, banks far less eager to loan money to business, and businesses that are still on shaky ground, from a bank’s perspective.

Many small companies managed to survive the recession, “but their balance sheets are bruised,” said Villarreal, making it even harder for them to find a sympathetic ear among gun-shy bankers.

“Banks are still lending, without a doubt, but it’s a lot more difficult. You really have to prove the success of the business,” said Villarreal.

The first step in the counseling process at an MI-SBTDC is to “help the business owner understand their business from the financial point of view,” he said.

The new finance specialists are dedicated to that task alone, whereas before that staff was added, finance was one of many fields worked on by the general SBTDC staff.

One of the first steps in better financial management is learning how to manage cash flow more effectively, said Villarreal.

Sometimes a business will come to the SBTDC desperate for a loan — not for expansion or other new investment, but simply because of a cash flow problem. Villarreal said a company may think it needs several hundred thousand dollars, but often an in-depth review of the company’s financial situation may show that only a hundred thousand dollars is needed if the company can learn to better manage that cash flow.

Villarreal said the good news these days is that about half the calls the West Michigan Region is receiving are from companies experiencing an increase in orders and confident that now is the time to expand in order to accommodate returning business.

“Now they need financing to carry them through the growth, but they’re not as attractive as they would be to a bank five years ago,” he said.

Villarreal said he is not inclined to believe that banks are easing up on their loan requirements for businesses. “I don’t think any time soon we will come back to where (the banks) were three years ago when it was easier to get a loan,” he said. “But I will say the bankers we are working with are definitely understanding small business, and where they are right now, a lot better.”

Banks no longer just look at a company’s financial data from the prior year or two: “They’re looking at longer histories and they’re also looking at the future,” said Villarreal.

“We have stronger and smarter business owners right now. They’ve learned in these tough economic times that there is zero room for errors or leaving money on the table. They’re really watching their margins,” he said.

The SBTDC uses a software program that can show a company what kind of condition it is in financially in its industry in relation to its size, number of employees and other key factors. Those measurements can indicate weaknesses and inefficiencies.

“And guess what? This is what the banks do” when that business owner comes in to make a presentation on a loan request, said Villarreal. All that data is turned over to the bank’s credit analyst.

So even if the business owner “paints a pretty picture” in the business plan, the bank analyst “is going to know if these numbers are on or not.”

So the first step in Information-Based Planning is an analysis to help the business owners “understand where they are at — how they compare to their peers, which identifies weaknesses. Then we develop an implementation plan to fix it,” he said. “Is it labor? Overhead? Whatever area of that business is leaking dollars, so to speak, we address.”

The MI-SBTDCs do not charge any fees to businesses that come in seeking help, noted Villarreal, and they are determined to help all who seek help sustaining or growing a business. “We are very busy, but we always have room for more.”

Entrepreneurs and small business owners may access the services of the nearest MI-SBTDC by calling (616) 331-7480, or at www.misbtdc.org. The SBTDCs help all types of businesses, but in 2009, 27 percent of the 15,808 clients served across the state were manufacturing companies.

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