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Tip of the Month for August 2013

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For Many Small Business Owners, the Time is Right to Get a Loan

According to data released in July by the Small Business Administration’s Office of Advocacy, small-business lending activity is on the increase. The number of loans is on an upswing, but the size of the amounts loaned is smaller. The agency’s yearly review showed that the total number of loans increased from 21.3 million in June 2011 to 23.5 million in June 2012. Because statistics are only available for the size of the loan and not the size of the business, small-business loans are defined as loans under $1 million in the SBA report.

The general increase in loans is a positive sign. Various explanations have been offered as to why the individual loans are smaller, but most commentators believe it’s a logical byproduct of the aftermath of the financial crisis. The loan approval process is lengthier now and the requirements are very stringent. The pendulum has shifted radically after the financial debacle – as anyone can testify – whether their loan application was for a business plan or a mortgage. That being said, even though the value of small business loans has declined somewhat, the uptick in loan applications suggests a positive turn in the nation’s economy.

Small business owners seeking capital should be upbeat, while remaining realistic about today’s lending environment. If it has been a while since you looked for credit, knowing what to expect will improve the odds of getting the loan you want.

  1. Expect to provide details on your plans, projected costs, timeline and return-on-investment projections. Go in with a detailed proposal appended to your loan application.
  2. Try to understand how loan officers think these days. They want to minimize risk, make sure they’ve done their homework and make all the correct inquiries. To a nervous banker, several small loans are much better than one big loan.
  3. Present financial data for the past several years that show both your company’s stability and your own personal credit-worthiness. Banks are asking for more backup information than ever before. Don’t be surprised or offended if they request more information or additional data from alternative sources. Be patient. Don’t be discouraged if you are turned down by one lender. Try another.
  4. Think beyond traditional banks. Are there other lending institutions, local lenders or community resources that might help provide funding? Is your town or neighboring community trying to attract business or revamp certain business areas? Have you tried tapping into your local Chamber of Commerce?
  5. Use the resources available to you at the Small Business Administration offices. Check online to see what they might be able to do for you.

Bottom line: there is more funding available now. But times have changed and entrepreneurs must change their expectations and their strategies to win over cautious lenders.