David Kirkpatrick

May 29, 2009

Small business should go to small banks for loans

Filed under: Business — Tags: , , , , — David Kirkpatrick @ 4:43 pm

It’s a confusing credit situation out there for small business, but it looks like entrepreneurs who hit up smaller banks for money have a much greater chance of securing the needed loan. If this plays out correctly on the ground it could get small business and small banking back on the same team.

At one point in time bank mangers and presidents had personal relationships with small business owners and could make gut-level decisions to help the entrepreneurs. As all the business went toward larger banks small business owners were subject to the whims of loan risk algorithms and random policy shifts that could, and did, impact the bottom line.

A friend of mine last year went through just that with a major bank that doesn’t exist in name any longer. A policy shift and manager transfer left his account wildly overdrawn for no reasonable reason from a business perspective. The event cost him a fair bit of money, but luckily not any contractors working under him or contracts he was servicing.

Small business owners, the lesson is get local with your banking, and hopefully you’ll develop relationships that can last with the decisions makers at your local banking institution.

From the link:

At first blush, the evidence seems contradictory. On one hand, many national banks have drastically cut back small-business lending. In addition, Advanta, a major issuer of small-business credit cards, declared on May 12 that it was closing customer accounts to new charges.

 On the other hand, the Federal Reserve’s April survey of lending practices showed credit conditions have loosened. The Small Business Administration says the weekly volume of loans to small businesses is up more than 25 percent since March. And community banks, those smallish, old-fashioned institutions that make up the vast majority of the country’s 8,300 banks, say that they are ready to take back customers from the national lenders.

Much of the confusion has its roots in contrasting banking strategies. Big national banks are much more likely to have been drawn into the morass of securitized loans, credit-default swaps and the like, which has forced them to preserve capital by curtailing lending.

The smaller banks, meanwhile, have traditionally made their livings off of loans that they carry on their own balance sheets to individuals and small businesses. For them, despite the economic crisis, the current situation is more or less business as usual.

Indeed, a May survey of 1,500 small businesses by Barlow Research Associates found that companies that applied to small banks for loans in the past year were three times as likely to get credit as those who applied to large banks.

1 Comment »

  1. Today is glogal economic challenge can we depend on ?

    Comment by Free For Loan — June 1, 2009 @ 10:56 am

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