If you still haven't formed a relationship with your very own friendly neighborhood banker, then you'd better run--not walk--to that bank and make yourself known. Otherwise, you could really be missing out: When it comes time to get that important loan, a friendly working relationship with your banker may be your biggest advantage.
That's the word from Jere Glover, chief counsel for the SBA's Office of Advocacy, who shared with us results from the office's "Micro-Business-Friendly Banks in the United States 1999 Edition" report. The thing that stands out most about this sixth annual survey of loans of $100,000 or less, says Glover, is that although business lending as a whole has continued an upward climb, the rate of actual dollar amount lent to entrepreneurs has slowed. "This is not [as bad as it seems] for business," he says, "because we've had rather robust growth through the years [3, 4 and 5 percent]. But now, [with this year's 2.5 percent increase], it's not growing as fast."
Also, the survey's data doesn't indicate how many companies actually tried to get microloans. Consequently, Glover says it's difficult to determine if this decrease portends a looming credit crunch.
On the positive side, the number of banks lending across state lines in 1999 increased over 1998. Glover attributes that growth in part to aggressive marketing campaigns by big institutions like Wells Fargo, the bank- merger phenomenon and the growth in online lending.
But there's a darker side beyond the silver lining, because these out-of-state institutions tend to make credit-card or credit-scored loans in the $7,000 to $20,000 range, but keep in mind, these loans typically carry a higher price tag. Says Glover, "[These banks] are making lending decisions based on a fairly limited bit of information (your credit history), which means that if business owners aren't very careful to make sure their credit histories are good, they're going to be squeezed out of this market into a 'no bank's land.'"
This is exactly the kind of situation where it pays to have a relationship with your community banker, says Glover. These institutions weigh more factors when making lending decisions, which bodes better for the average borrower.
The bottom line: The lending landscape hasn't changed much for entrepreneurs. If you've got good credit and don't want a lot of money, loans are easier to obtain. However, if your credit has blemishes, it's going to take some careful digging and evaluating to find the cash you need, and it sure doesn't hurt to be on a first-name basis with your local banker. So check out the top-rated microlenders that follow. Even if they aren't located in a community near you, it might still pay to give them a try.
Making The Cut
8 easy ways to find out if that bank is right for you.
By Wallace Weeks
If there's a list out there of entrepreneurial frustrations, selecting the right bank is somewhere near the top. For good reason, too: Not all banks make it a point to reach out to small businesses. So where do you look, and what do you look for? Try these eight secrets to success:
1. Meet the commercial lenders or relationship managers you might be working with. Large banks are often divided into two sectors: commercial banking and retail banking. Retail banking usually focuses on personal accounts. Commercial banking is often segmented into three parts: small business (less than $3 million in sales), midmarket ($3 million to $20 million in sales) and large business (more than $20 million in sales). Occasionally, large banks will attach their small-business lending unit to the retail banking division. The point? Find out which bank department best fits your company's needs. Then you're ready to meet with the right people.
2. Find out if the bank classifies your industry as undesirable. This isn't common knowledge among a bank's staff. You'll have to get it directly from the small-business banker. He or she may feel uncomfortable with the subject matter, so make it easy by saying something like, "In your bank's loan policy manual, in the section titled 'Undesirable Loans,' is my industry listed?"
3. The bank must understand your industry--no exceptions. Every industry has certain characteristics not commonly understood. When bankers don't understand how an industry operates, they don't understand how they'll be repaid. And when bankers don't understand how they'll be repaid, they decline loan requests.
4. Make sure the bank is small enough. Only then will a banker take time to spell out the requirements. You should be able to ask questions--and get answers--about loan-to-cost, cash-coverage ratios, how they calculate the debt-to-income ratio of entrepreneurs and more.
5. Determine if the bank is large enough to accommodate your needs. Every bank has a legal lending limit based on its equity. So a bank with less than $100 million in assets may not be able to accommodate a small manufacturer with $5 million to $10 million in sales.
6. Make sure loan requests for your business are underwritten locally. Here's why: Let's say a business in Jacksonville, Florida, delivers its loan application to the local branch. Several days later, it receives a letter of decline in the mail. When the business owner later questions the branch manager, he or she learns that all small-business loans are actually processed in Tampa, Florida, and that there's no one there to answer questions.
7. The bank must be looking for smaller customers. These days, a growing number of niche banks aim to deal exclusively with small businesses. It also helps to ask around and find out which banks other entrepreneurs are using.
8. Start with the bank that handles your deposits. But if it turns out not to be friendly to your business's needs, it's time to move on to one that is.
Wallace Weeks is founder and president of The Weeks Group Inc., a small-business strategy consulting firm in Melbourne, Florida..
- SBA Office of Advocacy, (202) 205-6941, www.sba.gov/advo/stats/lending/1999/micro99.pdf.