New government regulations, although well intended, have created significant problems in the industry. In the past, business loans were pushed through the application process with reckless abandon and problem borrowers were pushed down the line to become someone else’s problem. Now, regulators demand more accountability and banks are required to seriously vet potential borrowers.
This is obviously a very good thing for banking, but while potentially problematic business loans are denied for good reason, many potential good financings are left on the table. This creates a problem for operations deserving of consideration from traditional lenders because banks are not held accountable for passing up good opportunities, they are just accountable for the bad ones.
Is It Hard To Find Business Loans?In the current environment, if you want to secure capital, you need to try and be the prettiest girl in the room. Sometimes this can be achieved by attending a small party instead of trying to stand out in a stadium filled rock concert. The recent changes in banking regulations have required large banks to significantly beef up their reserves which translates into far less capital to be available for lending. Smaller banks with under $10 billion are not subject to this requirement and therefor may have more ability to lend.
Another important factor in becoming more attractive is to have a good story to tell. Unfortunately over the last few years businesses have had a hard time showing that there ventures are on the upswing. If you can’t show good solid growth, then finding a non-traditional lender whose financings do not have to fit into a precise mold may be better instead of wasting time applying to large institutions.
Seek Business Loans At Smaller BanksNext, when applying for business loans, especially for a start up, lenders like to see that applicants have some experience in their chosen fields. Borrowers who have at least 3 years in a given field and are willing to, or have already, invested their own money into a venture in that industry are much more attractive borrowers than those with no experience at all. Also along these lines is the fact that showing that real customers, or at least a compelling market, for your products or services already exist is an advantage. If there is an opportunity to purchase an existing business rather than starting from scratch, then it could help make you more attractive to lenders.
And then of course there is credit history. Lenders need borrowers to be credit worthy and show the ability to repay any loan they fund. Having other assets and showing liquidity is important but for those with little credit worthiness there are always unsecured business loans. These types of loans will help an owners establish business credit and a repayment history in order to become more attractive in the future. The rates are competitive and the programs have few restrictions governing how proceeds are used. Trying for business loans at this type of smaller party may be the key to securing financing in the current economic climate.