The Future of Small Business Lending in America
One of the biggest concerns for small business owners is securing capital to grow and enhance their business. Ever since the 2008 recession, banks of have been reluctant to len money, even to small business owners with proven track records. Today the picture might look similar. That is, if you’re looking to be approved for a loan from a big bank. At banks with more than $10 billion in assets, 10.2 of loan applications from small businesses were approved in May, down from 10.6 percent in April, according to Biz2Credit.
But that doesn’t tell the whole picture. Small banks — typically local banks that are apart of the same community your small business operates in — have a much higher approval rate for small businesses. They may know the owner better, have a better feel for the clientele and how successful the business can be in paying off its loan. Nearly 50 percent of small business loan applications were approved last October, according to a similar report.
So what’s the future for small business lending?
Rohit Arora, chief executive officer of Biz2Credit, said pressure from regulatory changes in Washington are likely to force large banks to boost small business lending over the next two years or so, but that’s not a guarantee. How can your small business improve its odds of winning a loan application?
One of the best things you can do is develop a solid business and pitch your idea to your community bank. Banks that operate in the same community have a feeling for the type of customers you’ll attract. They’ll understand how popular your business can be — making that decision of whether or not to give the stamp of approval much easier.
But we live in an ever-changing world today. That means you also need to get creative.
New York-based small business owner Peter Kocher, owns and operates a bike retail and repair shop in Brooklyn. When he wanted a $350,000 to open a second store, he was denied by JPMorgan Chase and only offered $175,000 plus a $50,000 line of credit from another bank, under the condition that he would close out an existing line of credit with another bank.
“It wasn’t an option,” Kocher told Crain’s New York.
He ultimately received his funding from a community-development lender which is surprisingly financed by large banks. The NDC Grow America Fund awarded $345,000 and he could keep his existing lines of credit. These types of options are becoming more of a reality as big banks continue to diminish their small business lending space. At the same time, smaller local banks are doing the complete opposite.
One small bank that serves the Pacific Northwest actually saw their small business loan applications double this year. According to that bank, customers haven’t had a close relationship with their previous banker. “We recognized a need in the marketplace to have a relationship — a partnership — with small businesses not based on a credit score but on a real understanding of their business and financials,” the bank’s spokesperson told the Huffington Post.
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By developing a relationship with a small bank in your area, you can increase your odds significantly at earning financing that will help grow your small business. The future for small business lending is actually bright according to sources such as Biz2Credit.
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