Business Outlook Trumps Tepid Economy Among Lower Middle-Market Firms

Business owners and middle-market executives are more optimistic about their own businesses in 2014 than they are about the overall U.S. economy, says SunTrust Banks, which recently sponsored an annual survey of businesses with revenue from $10 million to $150 million. Middle-Market Executive recently caught up with Mark Chancy, head of wholesale banking for SunTrust, and asked him about the survey’s seemingly conflicted message.

MME: It seems like the lower middle market is sending a mixed signal …

Chancy: Well, for the second year in a row, business owners are optimistic about their businesses. They’re looking forward to ways in which they can lower expenses, increase revenue, and improve client satisfaction, and they are looking at investments that will help them to do this — these are primary technology investments. What’s interesting here is that they are looking to make these investments despite continued uncertainty in the broader economy, and they have a pretty clear path to raising the capital or funding to allow them to pursue their growth objectives. They have some retained earnings that they plan to deploy, and they have a rather clear line of sight to funding in the marketplace. If you go back to the financial crisis, there was a fair amount of concern in the media and marketplace around whether banks would stand by and be supportive of the economic recovery. I think this survey would indicate that banks are there and that companies feel comfortable in raising capital.

MME: Still, aren’t the concerns regarding the broader economy likely to have an impact?

Chancy: I would be concerned if the response to the national economic situation was to translate into them being less confident in their business and therefore not willing to invest in their businesses and not looking for ways to grow their businesses over the next several years. The data actually shows the opposite, which is that they are more confident in their own businesses. They’re acting on that by looking for more ways to invest and seeking out the funding that’s required. They’re pleased to see visibility to where they can obtain the funding that’s required, and they’re willing to put up some of their own retained earnings as well as seek out third parties like SunTrust and other banks. I look at the positive side of this, which is that a couple of growth percentage points of GDP isn’t causing the businesses to hunker down. Instead, they are actually starting to look to grow.

MME: Why do we see technology investment increasingly becoming a central piece of the business plan?

Chancy: At the highest level, these companies are looking to offset some of the challenges from the economic environment. They cited healthcare laws and government regulation and higher operating costs as the headwinds, and one of the ways they are looking to offset these headwinds is by figuring out ways to drive revenues. Certainly there are technology applications that support revenue generation that are becoming more efficient and productive on the operations side of the equation. If you take the revenue and the expense side and say that you have to get more effective on a daily basis with your team of folks as you enter the marketplace, technology can support that. If you can automate certain processes and eliminate steps through technology and platform upgrades, then you can reduce your costs and get more productive on the processing side. The combination of these two gives you a lift in cash flows that offsets the negatives of the increasing costs of healthcare and other regulations.