Are banks lending? Understanding the current financial environment

After the economic downfall five years ago, lending regulations have become markedly tighter, allowing only the most highly qualified business applicants to get access to money. This has been toughest, perhaps, on small businesses struggling to fund much-needed growth.

Where does that leave all the small businesses that, without funding, can’t keep up with the competition? Well, money has become more restricted but that doesn’t mean it isn’t available.

Two weeks ago, the FDIC released its Quarterly Banking Profile, showing the average loan-to-deposit ratio dropping over the average of eight major banks as noted by Bloomberg. This signaled to some that lending was down and reinforcing the widespread notion that it’s going to be tough for any businesses – small or large – to get a loan when they need it.

If you dig into the loan-to-deposit statistics, however, as John Maxfield and The Motley Fool did, you find that the number of loans is not decreasing; rather, deposits have increased significantly, forcing the loan-to-deposit ratio lower than it has ever been.

So, what kind of loan is right for your small business? It is important to work with a bank and banker who assists you in determining the best lending solution to meet your needs. Generally speaking, all banks offer conventional financing options; however, not all banks utilize creative lending programs that provide more opportunities to lend to small businesses, such as Small Business Association (SBA) loans.

SBA Lending programs enable banks to offer a lending option with the greatest financial flexibility. FNB Fox Valley typically offer terms that aren’t otherwise available on a conventional basis to help in enhancing cash flow to grow your business – extended amortizations, interest rate caps, and loan maturities matching loan amortizations.

SBA loans also may provide opportunities for banks to lend without sufficient hard collateral if other credit underwriting criteria is met. Without the SBA loan program, many small businesses would have nowhere to turn when they need funding.

If an SBA loan is the route best suited to your business, there’s good news for you when it comes to small banks: we’re the only type of lender seeing an upward trending loan approval percentage rate over the past six months.  The most recent Biz2Credit Small Business Lending Index showed that community banks have hit an all-time high approval percentage of 51%. Small banks approve SBA loans more frequently than big banks approve them. Since October 2010, FNB Fox Valley has approved 84 SBA loans totaling over $20 million.

2D bar graph, SBA Loans March 2013

To understand how to position yourself most efficiently for small business lending approval, contact our FNB Fox Valley commercial team at the local branch in your area.