Banking for the Little Guy
Finding Money in Challenging Times
By Ben Malik
Still reeling from the subprime debacle, many large banks are reluctant to renew lines of credit and provide new loans to small businesses, but community banks are picking up the slack.
As bank regulatory agencies scrutinize loans at a much higher level than they have been in the past, getting approved for a business loan – even if you’re a profitable operation with good cash flow – can be more difficult than ever for small business owners. In today’s tenuous financial climate, these companies face huge hurdles when approaching larger banks for commercial property loans or even trying to tap existing lines of credit.
According to the Federal Deposit Insurance Corp. (FDIC), lending across the U.S. economy decreased 7.4 percent last year, the biggest drop since 1942. In addition, the Treasury Department estimates that $1.5 trillion in lending evaporated in 2010. And although corporations are issuing bonds again and large companies have better access to bank loans, it’s an uphill climb for the entrepreneur.
The reality is as a small business owner, sooner or later you will need to get a small business loan – whether to get the operating capital for a business startup or to finance an expansion. And regardless of who you bank with, the lender will have some expectations. However, you can greatly increase your chance of getting a loan by being prepared to meet those expectations. Having the appropriate documents available will help persuade the lender that you not only require a loan but that you are a good risk.
Here’s what you should have readily available to show lenders:
Business Plan – This will indicate to lenders not only why you want a loan but what you plan to do with the money.
Cash Flow Projections – Your business’s cash flow projections will give lenders concrete financial data that they can use to access the risk.
Personal Financial Status Statement – A list of your personal assets and debts will give lenders a fuller financial picture.
Past Business Tax Returns – If your business is established, these returns will give lenders a better idea of how your business is doing financially.
Credit Rating Report – Your credit dealings make up the history that’s used to assess whether or not you are a good risk.
As stated earlier, even if you’re qualified and meet all lending criteria, it can still be very difficult to secure a loan from a large bank in today’s economic climate. Fortunately for small business owners, not all lenders are created equal. Many community banks weren’t involved in the residential real estate lending nightmare and, as a result, are better positioned to provide loans to qualified businesses.
Community banks have a vested interest in the region and focus their attention on the needs of local families and businesses in Brevard County. Conversely, many of the nation’s megabanks are structured to place a priority on serving large corporations. As a result, there is a credit migration, as many small business owners who can’t get loans from larger banks are coming to locally-owned banks for help.
Another reason the smaller banks can be more “pro-business” to their clients is that they also look at character, business history and discretionary spending in making loans. These banks can also make decisions more quickly because they are made locally, not in different states by people who have no accountability to the communities in which the branches are located … and because they themselves are a small business, they understand the needs of entrepreneurs.
Small businesses account for 65 percent of U.S. employment, and if we’re going to come out of this recession and get people back to work, it’s going to be because we give small businesses the support that they need. The community banks are doing their part to make sure that happens.
Ben Malik is the vice president and area relationship manager for Florida Bank of Commerce’s Melbourne branch.