BMO LENDING A HELPING HAND TO SMALL BUSINESSES
Arun Kumar is Head of Small Business Banking for Canada for BMO. Arun and his team are responsible for the customer experience, segment strategy, channel strategy, business competitiveness and financial performance of the small business segment. The team’s mandate is to relentlessly pursue a great experience for our small business clients and meeting their evolving needs. Arun joined BMO in year 2000 and over the past 19 years has held client-facing roles in Retail Banking, Business Banking, the Contact Centre and the Corporate Finance Division as well as central strategy and implementation roles in P&C Customer Solutions.
BMO Bank of Montreal has always been one of the leading banks for business banking. What do you believe sets BMO apart from other banks when it comes to the commercial banking side?
BMO has a long history of being a leading commercial bank, and I believe there are a few differentiators that have gotten us here. Firstly, it is our relationship managers. We’ve spent a lot of time and effort over many decades building a strong relationship advisory team that our business clients lean on. Our team takes the time to understand the individual needs of our clients’ businesses, which helps to provide tailored recommendations and approaches.
As well, we pride ourselves on the approach we take towards credit. Our philosophy is to work with our business clients, in both good times and bad, to find solutions for their business and get them over hurdles. We want to be partners on their business journey, from when they first start out to when they encounter significant milestones, as well as when they look to exit.
Can you talk about some of the other programs that BMO offers to help small business owners?
We’ve been on a journey to create simpler and more relevant solutions for our small business clients and to make it easier for them to interact with us and consume our products and services. Our goal is to make each interaction as effortless as possible and allow them to more easily tap into BMO’s solutions to help them fulfill their goals. As an example, last year we launched a new lending platform for small business called BMO Business Xpress, which has significantly reduced the time it takes to make loan decisions. We’ve reduced the time to down approximately 20 minutes from several days.
People often think that getting a small business loan from a bank is challenging. Why do you believe that is?
Until recently, most financial institutions did not tailor offerings to small businesses. They would offer commercial solutions or retail solutions and try to force fit them to meet the needs of a small business customer. The challenge is that neither addressed the specific needs of a small business.
We’ve changed that and created solutions specifically designed for small businesses.
BMO Business Xpress is a great example. We re-examined at how small businesses get loans and came up with a solution that provides them with faster and more convenient access to capital. What we’re most proud of is that it saves time for small business clients, as well as our team members, by freeing up capacity – so they can focus on more complex client needs and providing advice.
When it comes to choosing the right lender for a business loan, the choices are endless. What do you believe small business owners should look for in a lender when deciding which one to choose to get their business loan?
For a small business looking to get a loan, there are two key things to look for. It is important to find a lender that has offerings and solutions that are built specifically for the segment – small businesses have distinct needs and need specialized solutions to address them. The second thing to look for is a lender that has a long-term view on the relationship. Part of what helps to determine this is the resources that are brought forward to help the small business owner run and grow their business.
A lot of small business owners often try and finance their business with their own savings rather than getting a business loan. Do you believe that’s a wise decision and why?
It’s important for small business owners to separate their personal finances and business finances. The advantage of separating finances is that it provides the small business owner with a clear picture of the business’s financial health, instead of tying them to their personal assets.
In addition, separating personal and business finances is important from an accounting standpoint and provides the ability to take advantage of tax deductions, including writing off business expenses.
How early on should business owners apply for a business loan? Should they wait until their business has been launched or should they do it in the early planning stages?
One of the first things that a small business owner should do is come up with a business plan – a good business plan is a dynamic, strategic tool that answers two key questions. What does the business hope to accomplish and how is it going to accomplish it? The business plan will provide guidance in terms of the investment required and the timing of the capital needs.
What we recommend is finding time to sit down with a relationship manager at your bank during the planning stages and talking to them about how to raise financing. They are a great resource to pull from. Often, they will be able to add some key insights from their experience gained from helping other small business owners that are in the same stages of their business.
As the head of Small Business Banking of BMO, what financing tips can you give to small business owners when it comes to managing their finances?
The most important thing to keep in mind is to have a plan for the business – everything starts here. A good business plan becomes a compass providing direction to the business owner.
It’s good practice to have a weekly and monthly plan to determine how many clients need to be acquired, how much of the businesses product or service needs to be sold, and how many people need to be hired to hit revenue and profit targets. The plan also provides a small business owner with the ability to track how the business is performing against the plan. If things are not on track, there is a greater ability to pivot and make any necessary adjustments.
Small business owners often face several challenges and risks when it comes to their finances. What would you say are the three biggest financial challenges for small business owners?
The biggest challenge facing small business owners is cash flow. Small business owners are constantly concerned about collecting money from their customers in time to pay their staff and bills while investing to expand their business.
Small business owners also need to have a good understanding of the demand for their products and services. The better they understand the demand and when they can expect to experience seasonal dips in traffic, the better they will be able to account for the resulting dips in revenue and prepare for them.
Rapid growth can also be a challenge for small business owners if it is not properly planned for. A small business owner that is using their own personal resources to fund their business, might come up against a barrier when presented with an opportunity for expansion, as they aren’t able to make the necessary investments.
What precautions do you believe small business owners should put in place to avoid these financial challenges?
Having a business plan in place is the best precaution. The plan will help the owner have a vision for where they are looking to take their business and all the steps to get there. The plan provides something to benchmark against – this helps with tracking growth and ensuring that business milestones are hit.
Small business owners should ensure that they are controlling the expenses of the business, particularly at the start-up stage. While it is tempting to have the best new equipment, best-in-class software, and a large staff to help grow the business, it is important to think these decisions over very carefully. Small business owners need to always ask themselves if the expense in question is going to help them generate more revenue and how it’s going to help them do it.
Besides what’s been noted, it is also important for small business owners to have local area intelligence. While a brick and mortar location typically doesn’t change over time, the location dynamics and demographics do. Staying on top of what is going on externally around where the business has been set up is important, as it provides a good indicator of the current economic situation.
What is your message to Canadian SMEs on small business month celebration?
The journey of a small business owner can sometimes be a bumpy road, but deciding to be a small business owner is an act of courage – you’re taking your destiny into your own hands and, at the same time, being part of a major economic growth engine in the country. Small business owners should take a lot of pride in what they contribute towards.
There has also never been a better time to own small businesses. Across the board, industries are putting much more focus on the segment. To speak to what we are doing, we are standing behind the aspirations of entrepreneurs – they are the people driving the “real economy” who make up over 90 per cent of the private sector workforce in Canada. To do this, BMO has made the commitment to double our support and lending to small business and female entrepreneurs and have earmarked $3 billion in capital to that end.