Cadence Bank Chief Banking Officer President Hank Holmes discusses how middle-market companies can adapt their business model to our new reality.

The coronavirus pandemic has upended the economy and business in ways we’ve never seen before. Leading economic indicators—from unemployment to GDP and everything in between—show numbers are down, but you don’t need to see these numbers to know how the crisis has affected your business.

While there are some exceptions, the growth plans for most middle-market businesses that were in place just a few months ago have been put on the shelf. Business growth in the traditional sense isn’t happening right now. Instead, many companies are in survival mode, just trying to stay afloat as they adapt their business model to the new realities of a COVID-19 world.

How should you view growth for your middle-market business in the midst of a worldwide pandemic as much of the U.S. and world economy are beginning to emerge from a state of lockdown?

Acknowledge reality

First, acknowledge that growth opportunities are extremely limited for most businesses right now. Sure, there are exceptions like grocery stores, Amazon.com and makers of hand sanitizer, which are thriving during the pandemic. Retail stores, restaurants, and the travel and entertainment industries, on the other hand, are facing serious struggles.

Maybe your business is somewhere in the middle. Perhaps the pandemic hasn’t dealt you a severe blow, but you’ve had to make drastic changes in light of social distancing and mandatory quarantines such as moving to a remote workforce model or adapting your operational processes. What should your approach to business growth be right now?

I would sum it up in two words: nimbleness and flexibility. Given the tremendous uncertainty we’re all facing right now, middle-market business owners and executives need to be ready to change key aspects of their business quickly to adapt, survive and even thrive.

For example, we work with one middle-market company that manufactures chemicals. Due to the pandemic, they went from doing really well to a virtual standstill almost overnight. They quickly retooled their operations to start manufacturing hand sanitizer instead and now have a positive outlook for the foreseeable future. Their management immediately spotted a new opportunity and was nimble and flexible enough to capitalize on it.

I also encourage middle-market businesses to focus heavily on capital preservation, expense management and efficiency enhancement while practicing conservative financial management during this time. I’m generally an optimistic person, but I believe the crisis and economic slowdown are going to last longer than most people think.

Find the silver linings

There are two positives I’d like to point out regarding the economic and business situation. First, financial institutions are in better shape today than they were prior to the Great Recession a decade ago. In general, banks are better capitalized and have improved risk management due to reforms that were implemented after the financial crisis, which puts us in a better position to help our middle-market clients.

Second, I believe that the federal government’s stimulus efforts, such as the Paycheck Protection Program and direct stimulus checks mailed to many Americans, will have a positive effect in terms of boosting the economy. Most people want to support the economy and get back to work, but they have to feel safe first.

Use credit in moderation

At Cadence Bank, we take a long-term approach when it comes to how we can best support our middle-market clients, now and always. This goes for helping them meet their current working capital needs as well as plan for growth when the time is right.

Growth requires capital, but during uncertain and difficult times like this, we generally believe that credit in moderation is the best approach. Most of the damage businesses suffer in an economic downturn occurs when they are over-leveraged, so we’re generally taking a more conservative approach with lending right now.

This might require a business to raise growth capital from another source, such as equity or mezzanine. The most important thing is to understand both the opportunity and downside risk involved in raising growth capital in the current environment.

Middle-market businesses and the recovery

Despite the damage that has been caused by the coronavirus pandemic so far and the uncertain outlook going forward, I’m optimistic when it comes to the eventual rebound of the economy and U.S. businesses. Throughout our history, middle-market business owners and entrepreneurs have taken ideas and capital and used them to build profitable companies.

It’s this kind of entrepreneurial creativity and initiative that we need right now to bring about a business and economic recovery in our nation.

Please let us know how we can help you.

This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.