Despite all of the government’s encouragement, banks are not lending money, especially to small businesses. In fact, in a recent statement, U.S. Federal Reserve Chairman Ben Bernanke said there are too few loans being granted to small businesses.
The State of Small Business Lending
The total number of small business loans has dropped $40 billion to $670 billion in less than two years, down from $710 billion in the second quarter of 2008. Bernanke has taken the issue to the banks, saying the institutions must lend to more small businesses, as he believes the small business industry is the backbone of the American economy. To Bernanke, thriving small businesses translate into a thriving economy.
Who Are Banks Lending To?
However, banks are not seeing it Bernanke’s way. The financial institutions argue that small business loan requests are typically for struggling small businesses trying to stay afloat, and the banks are simply not inclined to watch a small business fail, while their loan funds are lost to bankruptcy. In essence, banks are only lending to those who don’t need it.
Unfortunately for small businesses, the funds have dried up from the US stimulus package that helped the Small Business Association (SBA) provide guaranteed loans to small businesses. Now, small businesses have to rely on their own creditworthiness to obtain a loan, and many are struggling to do so.
Improving Your Chances of Approval
How can you, a small business owner, be sure you can obtain a loan when you need it? Here are a few tips:
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Pay your bills – Your small business credit is the key to remaining eligible for a bank loan. Be sure you pay your own personal bills on time, as well as your business bills. While your store’s rent is certainly critical to pay on time, so is your Office Depot business credit card.
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Prepare an updated business plan – All companies need a business plan to show a potential lender. Even if you have one from years ago, pull it out and update it with your current business plan strategies.
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Have a plan for the money – What will you do with the loan money? Be sure you can tell your potential lender how you will use the money to help your business succeed and be able to pay it back. Those who have a clear, specific, and precise plan are more likely to receive the stamp of approval.
Today’s lending environment is certainly difficult, but by preparing yourself and your company’s credit, you can improve your chances of approval.
