Powering Small Business Growth in 2025

EXPERT INSIGHTS: Amy Davis, SVP Director of Retail Business Banking

Small businesses are the backbone of the U.S. economy. Over the past year, they have faced continued pressure from persistent inflation and the higher cost of capital. According to Umpqua Bank’s 2024 Business Barometer, which published last June, small businesses’ optimism about the economy and their growth prospects hovered near pandemic-era lows. Since then, inflation has continued to decline, and the Federal Reserve has begun cutting interest rates.

In this Q&A, Amy Davis, SVP and Director of Retail Business Banking, discusses the current mindset of small businesses, and what they can do to improve cashflow and prepare for growth in 2025.

Q. Have you seen any changes in small business sentiment since the Fed cut rates? How will falling interest rates impact strategy in the year ahead?

As soon as rates began to come down, we saw a shift in sentiment and, as a result, in activity. Business owners are feeling more confident than a few months ago and are more actively planning for the next 12 months. We will likely see an uptick in M&A activity among small businesses in key sectors, but not across the board.

As rates ease, we are also seeing a shift in how businesses use their available credit tool kit. When rates are lower, small businesses typically use their lines of credit more frequently. When rates are higher, they are more likely to use their credit cards, which give them a 30-day window to pay off a balance without incurring interest.

Q. What advice do you have for small business owners as 2025 moves forward?

Business owners should already be planning for the new year and setting goals. I always advise reviewing plans and objectives again at the start of the year. Part of their process should include meeting with their closest advisors and partners (CPAs, bankers and tax consultants) to take a holistic look at their financials for the year. This way they can get full visibility into any adjustments that need to be made before yearend. This is particularly important in terms of tax considerations.

Q. What are the top questions small business owners should be asking themselves right now?

They should be asking questions that help to proactively ensure the business is well-prepared for both challenges and opportunities ahead. These might include:

• What was our income for 2024 and what are the implications for the next year?
• What is our expected growth in 2025? How can we better manage cashflow?
• Do we need to buy equipment to meet new business targets and take advantage of tax rules?
• As rates come down, should we consider buying our own building instead of renting?
• Are we in a good position to pay down term debt at a faster rate?
• Are we going to need new employees for this next year to meet business projections?

I encourage owners to share and review answers to these questions with their banker now so they can act quickly when it’s time to move.

Q. What are the top challenges small businesses are facing?

The top three challenges we continue to see are cashflow management, competition and cybersecurity.

1. Cashflow management is always a challenge for small businesses. They are constantly concerned about paying their bills on time and making payroll. This is an area we work very closely with our clients to navigate.
2. Competition is also an ongoing challenge. Depending on the industry, the barrier to entry may be lower or higher, and companies need to innovate, evolve and stay ahead of customer needs. Competition for workers, especially for lower-level jobs, is also a significant challenge right now.

• Another growing challenge is cybersecurity. Small businesses don’t have the same level of funds as larger companies, but that doesn’t mean they can’t be resourceful against harmful threats. There are plenty of cost-effective ways to mitigate risks, including payment protections. We recommend owners meet with their banker to discuss appropriate security controls they can add to accounts for protection.

Q. What are some actions small business owners can take now to better manage cashflow in 2025?

Business owners should connect with their CPAs and bankers to discuss where the business is today and plans for future growth. And add to this discussion whether or not their line of credit is the right size for their business given the growth they are projecting—this is really important.

To help manage future cashflow, businesses should also consider paying down term debt if they have extra cash right now. We suggest making a couple of extra payments on term debt to pay it down faster. If unexpected issues arise and they need to secure a loan, having a smaller debt amount can simplify the process of refinancing, extending or re-amortizing that debt. This flexibility can ultimately enhance cashflow.

Q. How can small businesses protect themselves from cyberthreats? What are some practical steps they can take in the year ahead as threats continue to grow?

There are a few tips we emphasize to our customers:

• Ensure check and ACH positive pay is turned on for their accounts. It’s imperative.
• Use two-step authentication on all banking accounts and systems. This is a basic rule to follow for business and personal accounts.
• Monitor bank accounts daily and immediately report any inconsistencies.
• Ensure employees are knowledgeable and vigilant about emerging threats. This is vital. For example, staff members should never open PDFs from unknown sources. Fraudsters use PDFs that install keystroke readers to steal your passwords and logins.

Q. Many small businesses have Economic Injury Disaster Loans (EIDL) on the liability side of their balance sheets. How should they manage their EIDL loans as they plan for future growth?

A lot of small businesses made use of EIDL loans during the pandemic. Rates were low, for example 3.75% fixed for 30 years. They were extremely attractive during a difficult time for the economy. The pandemic is behind us, but many businesses still have these loans on their balance sheets. If a company is planning to grow and needs to finance part of this growth, having  an EIDL loan on the balance sheet may complicate their ability to access additional bank capital. For businesses with liquidity, we suggest they pay off these loans sooner rather than later.

Q. Throughout your career, you have worked with thousands of business owners. What are the common traits that all successful entrepreneurs share?

I work with so many talented and amazing entrepreneurs. What they all have in common, among other things, is curiosity. They do their research, and the majority join national industry groups to enhance their learning. Many have done initial research on a topic before they call me to ask more targeted questions.=

They also ask for advice, listen to it and act.

The most successful entrepreneurs are also cautiously optimistic even when faced with challenges. They are comfortable with the risk that comes with starting and running a small business. They will measure that risk before they jump or further scale their business. They are all unique individually, but these are a few common traits they share and part of what makes my job so interesting.