If you read the papers, blogs, or watch the news you have heard this statement, banks are not lending money to small businesses. Even president Obama took the big banks to the wood shed in an attempt to inject some capital in the system for small business. The problem is that one group (small business owners) and the other group (commercial lenders) can’t seem to work out a good process after the meltdown of the stock market and the mortgage industry. From the business owners perspective they need money to continue to operate, from the banks, they only have so much money to lend and are looking for that perfect business to lend to. The question is who is responsible and what can be done to correct this situation? Let’s take a look at commercial lenders first.
What Commercial Lenders need to do
Banks need to lighten up. If loan officers at commercial lenders would start to look for ways to fund loans instead of declining them we would all be much better off. Commercial lending is all about viability and skin in the game. Commercial bankers look through piles of applications to find the best possible candidate to fund loans through the Small Business Administration Guarantee program. Part of the reason for this is because of the limited funds available to lend. The other reason is the bank is not willing to work with borrowers that have challenges. It boils down to time and effort for the loan officer. How much time is this loan going to take and what are the chances that this loan will be approved. This is a great attitude if you just want to fund loans and not be a part of the local business community. It is time for banks to take some responsibility in helping small business owners understand the loan process. As a test I call 3 commercial lending institutions to ask how to go about getting a loan and who could help me with the paperwork. Not one bank could offer me any assistance. Not even a phone number to my local SCORE office. If the banks can change their way of dealing with the small business customer, at the very least point them in the right direction to get help, more capital will flow to the market place. Now let’s take a look at the small business owners responsibility.
What Small Business Owners need to do
Small businesses need to get better prepared in order to get a SBA Loan. The sooner the small business community understands that good old days are over the faster they will start to get qualified for SBA loans or the ARC Loan. The fundamentals of a good SBA loan application is something every small business owner needs to understand. A few years ago anyone could obtain a credit card. You didn’t need great credit. You fill out a credit card application over the phone and receive approval in 10 minutes. Those days are over and are not coming back. Businesses need to plan for a loan application. Things like cash flow statements, executive summaries, and a swat analysis need to become part of the small business vocabulary. Business also must understand that the more skin in the game the better. If you have a business and are not willing to put something of value up for collateral then why would you expect anyone to give you capital?
OK. I have looked at the negative but what are some positive things that we can take away for the current situation that we all find ourselves in. The first thing is that small businesses are getting a lot smarter about money. Just ask any small business owner about how much money they have saved by cutting waist and they will not hesitate in giving an answer. You may even get a great story out of it. Banks are starting to set aside more money and looks like, at least the larger banks, will start to lend more money in the next few months.
With small business learning the basics and banks stepping up to the plate and helping educate the borrowers, 2010 could be a good year.
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No matter how much small business owners prepare themselves for a bank loan, nonetheless it won’t help out the majority of businesses. I’m not saying they shouldn’t do that, obviously with preparations one has a better chance, but there are other options available for small businesses out there. A business cash advance is one of them. With a business cash advance one can get cash for whatever they mat need it for in terms of your business. It is based on future sales, so if your having a slow period you’ll still be okay.
Peter, you have a great point. Many small businesses just do not have everything that the SBA is looking for. One way to get funds for a small business is to obtain a business cash advance. Small business owners should look into this even if they plan on getting an SBA loan. Always keep your options open.
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Borrowers must be able to present their business plan that includes whole of business strategy and projected forecasting. Equally evidence of reflective and robust practices that manage the progress would be an absolute necessity in obtaining further financial funding. Lenders, in my experience, are acting responsibly.
Small business have always struggles to gain easy access to finance. The banks are rightfully a lot more stringent following the downturn in market confidence in the past years. If a small business has followed it robust marketing and sales plan and has developed a good client relationship with their lenders, this issues of borrowing should be reduced. Far too often we lose sight of our projections and do not review and revise our business plans and projected income. If the intellectual data is recorded and evidence of your control and management throughout changing circumstances then banks will view you as lower risk than those who have no insight to why their business is growing or declining.
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