As the nation’s economic difficulties continue to drag on, every so often you start to hear rumors that things are ‘picking up’ and that lenders are opening up the pipeline for small business loans. Since many of the emails I get from small business owners are related to requests for setting them up with a lender (which, by the way, is NOT a direct service that our firm provides), I thought it would be helpful to put some factual information out for review.
In dealing with my professional contacts and conducting my research for this article, several things have become evident to me about the small business lending situation; they are as follows:
- the larger banking chains in the nation were previously the primary source of small business loans – including the high-risk loans. Those same banks are the ones that over-extended due to the lending practices they previously had in place, and have been forced to curtail lending.
- smaller community banks have always taken a more personalized approach in lending to small businesses including comprehensive reviews of appropriate financial ratios to evaluate the business; a comprehensive review of the person/business requesting the loan; and, insuring they have a strong understanding of the business, its industry, and the owner’s plan to grow the business and thereby insure repayment. Their loan standards have always been more stringent, but their loan default rate is also signficantly less.
- given the low-risk approach taken by smaller banks, today’s economic challenges really haven’t caused them to change much about their lending practices – they’ve always been conservative and are continuing to be so; however, they are also lending money!
- some people/businesses are just not credit worthy. Just as many people bought houses much bigger than they could actually afford because they were able to obtain 0% down, interest-payment only loans; many businesses also previously received loans they should not have because their business financials did not really justify it.
So to answer the question directly, yes, credit-worthy small businesses with solid financials and a solid plan can get loans. However, those loans will likely come from sources you would not have previously been aware of – or considered, had you been aware of them. An example is a lender our firm is currently establishing a relationship with in order that we might provide them with referrals to our small business clients in need of loans; previously these same clients that would now be on our referral list would not have been interested in obtaining a loan from this firm because it is not a U.S. based firm. However, the firm has an excellent loan program and lots of money available to lend – IF you can meet the criteria to receive the loan. Another example are the small community banks in your hometowns – again, they have money to lend and are willing to lend it IF you can meet the criteria.
To help you understand what’s necessary to qualify you to receive that loan – or alternately, outside investment (both will look at similar criteria, at least at the early stages) – please review this article from the New York Times and this segment of our BlogTalkRadio show, Strategic Growth Concepts for Small Business, entitled “What are Investors Looking for in a Business Plan and Where Do I Find Them“. In this segment our expert panelists discuss the criteria you need to meet to obtain both investors and loans.
So to summarize, loans are available IF you qualify for them and IF you are prepared with an effective plan to convince those in charge that your business has what it takes to operate effectively for the long-term and will have the capacity to repay the loan in-full. You will be required to provide 1) a comprehensive business plan AND 2) you will need to show a strong financial history AND 3) you must be credit-worthy. Our firm can assist you with #1, but you will need to be responsible for #2 and #3. Please contact us if you need assistance with your business plan.
Lastly, if you know of a lender that is working effectively with small businesses and would like to make their information available to our readers, please list their information in the COMMENTS section along with your name, company name and email.
The author, Linda Daichendt, is Founder, CEO and Managing Consultant at Strategic Growth Concepts, a consulting and training firm specializing in start-up, small and mid-sized businesses. She is a recognized small business expert with 20+ years experience in providing Marketing, Operations, HR, and Strategic planning services to start-up, small and mid-sized businesses. Linda can be contacted at email@example.com and the company website can be viewed at www.strategicgrowthconcepts.com.