How A Business Uses Its Banking Relationships To Finance Growth

07_growth_storyBlacktop Paving, Edmonton

The words “banks” and “innovative” don’t tend to be associated with each other very often by business owners. But Sean Davey, the owner of Blacktop Paving, says his bank’s innovative financing options have played a very significant role in his company’s success. “Once we were set up with them and got our approval, it was very quick,” he says.

The key is finding a bank that is not just quick, Davey says, but also flexible. Where most banks will typically only finance 75 per cent of an equipment purchase, and will want it to be five years or newer, his bank was willing to finance more than 100 per cent in some situations and wasn’t as concerned about the nature of the collateral. It even offered zero-down, interest-only terms for the first year on a line of credit, something that’s a big help to small businesses like Davey’s. “We’re able to buy ourselves 12 months, which then puts us in a better position with the bank in terms of our debt-to-asset ratio because we’re not realizing that portion until 12 months later.”

Businesses like Blacktop Paving need flexible, innovative financial institutions to allow them to seize opportunities and face challenges.

And when it comes to buying land, which was an important part of Davey’s growth plans, his bank proved even more co-operative. “If I want to go buy land and I go with a 10- or 15-year term, it’s really expensive to do it – and I have to have a big down payment. With my bank, they [agreed to] mortgage the land for 30 years, and [charge] me interest-only for the first two years. They did a lot of things that traditional lenders aren’t doing.”

Davey recommends that SMEs seek out those financial institutions that are willing to look beyond the traditional practices. He also suggests you ensure that whomever you are working with does not jeopardize your core banking relationship. “If you go to a traditional leasing outfit or anything else, the bank may not be comfortable with it,” he says.”

He also offers a cautionary word about the trade-off you may have to make on fees and interest rates which, for more risk-oriented financing, may be higher than you are used to. “But from my perspective,” Davey says, “if I look at cash flow, I’d rather write off that little bit more of interest and keep cash in my pocket. Without cash, I can’t operate.”

Parting Advice

Davey believes open, honest communication has been the key to his success with his bank. He goes so far as to suggest that the company owes its existence to his relationship with his banker. During the recession the bank gave him access to a team of experts that helped him navigate the challenges Blacktop was facing and get through the cash crunch they created. Since then he’s maintained a productive relationship with his bank, and he says a big part of that involves creating a meaningful two-way dialogue. “Not only is it my job to stay within covenants and work with the bank but also to educate them on my business.”

35% of Albertan businesses plan to hire this year, compared to 26% nationally

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