Archive for November, 2011

Small Businesses Should Look Down The Street For A Loan

November 6, 2011

Looking for a small business loan? Try a small bank or credit union.
In a trend noted earlier this year by our company, Information Strategies, Inc., and confirmed in its most recent survey as well as other sources, lending is up significantly for small banks and alternative lenders (credit unions and others) but has risen only slightly for big banks.
In recent years, in our talks with thousands of small business leaders, it has become apparent that smaller banks and credit unions offer a more personal approach to business lending.
They (smaller banks, credit unions) seem to view small businesses as partners rather than customers. They are also more helpful in times of crisis.
Several years ago, we spoke with a Massachusetts bakery company at a trade show. The owner was very happy to be at this crucial sales event because his factory had burned down less than seven months ago.
Because his insurance company was waffling on making good on the loss, he turned to his local bank which advanced him monies against the settlement.
Try getting that consideration at a big institution!
Despite their claims, its evident most big institutions are not helping small businesses in this era of slow growth.
As statistics from reporting agencies point out: big banks are approving less than 10% of small-business loan requests.
Credit unions, Community Development Financial Institutions (CDFI), micro lenders and others approved 61.8% of funding requests in October, a rise from the 61.5% approval rate in September.
Loan approvals by smaller banks increased to 46.3% in October, their highest rate this year and an increase from 45.1% in September, according to the most recent Biz2Credit Small Business Lending Index.
One reason credit unions and regional banks are making more loans to small businesses is because they are local in nature. They know the communities in which they operate, and that includes the economic realities of the area. That’s a big part of the reason that small banks and alternative lenders are at least four times as likely to grant a small-business loan then a large financial institution would be.
There are other reasons why credit unions are becoming more active. First, is that making loans is their primary way of generating revenue. If they don’t lend, they don’t make money. It’s as simple as that.
Secondly, the credit unions have stepped up a very aggressive marketing campaign to solicit deposits and to encourage small-business loan applications.
Perhaps stung by the housing crisis and new regulations, big banks continue to be stringent in their lending guidelines.
However, it is also understandable that the bigger amount a business wants to borrow, the more likely it is that a bigger institution will look at the deal.
It’s a fact of life that big loans are far easier to get than a micro-loan.
Ask for $100,000 from a big bank and the response will be “give me more detailed data.”
Ask for $10 million and the paper work will flow more quickly.
Let’s also face the fact that ordinary people are increasingly getting disillusioned with large financial institutions.
The fiasco of charging fees for debit cards shows the depth of this disappointment.
So look down the street for your borrowing needs, not the money center banks.