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?

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.

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.

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.