Small Business Loans–Lenders are Tightening Their Lending Right When Small Business Needs Them Most

Have you noticed that banks aren’t very enthusiastic about lending money to businesses these days? I attended my Chapter SCORE meeting yesterday where we had a guest speaker from a local bank. He was a commercial lender who openly shared with us the dilemmas the banks are facing. The reason for tightening of lending guidelines is two-prong:

1. Economic
2. Regulatory

Economic Reasons for Reduction in Small Business Lending

Because of the current economic conditions, banks are looking much more closely at certain industry types. Two industries specifically mentioned were the home building industry and recreational industries that require the use of discretionary income, such as RV sales. With start-up businesses, this particular lender is looking very closely at management ability, which is something he never paid much attention to in the past. Now more than ever, it’s critical that business owners have the ability to manage a company in such a way that it has the highest chances of survival.

Regulatory Reasons for Reduction in Small Business Lending

Federal regulators are faced with the daunting task of preventing bank failures. With depreciating real estate values in many areas of the country, there seems to be a rising level of fear of bank failures on the part of the federal regulators. This makes it much more difficult for lenders to make certain loans.

Why Small Businesses in Trouble Can’t Get Loans

Because of the aforementioned reasons, small businesses who are in trouble and need money to cash flow and survive for 12 or 18 months are being denied loans. In listening to the lender yesterday it was apparent to me that he was genuinely remorseful that he couldn’t help the businesses that he wanted to help–that he felt could survive if given the capital to do so and would have been able to help just two years prior.

Possible Solutions for Small Businesses

A couple of suggestions were made that may help some businesses. First, if you’re in a disaster area (which several counties in Arkansas are part of), apply for a SBA Disaster loan for working capital. Secondly, be willing to move all your deposits to a bank if they are willing to give you a loan. Deposits carry a lot of weight with lenders because they are the lowest cost funds available to them.