By Wenda Roycroft
There was a lot of media excitement this month when it was announced the nation’s biggest banks had increased their lending volume, particularly to small businesses.
We just wonder what took them so long.
The latest Biz2Credit Small Business Lending Index, a monthly gauge of 1,000 loan applications, found loan approvals at the nation’s largest banks jumped a half percentage point to 11.1 percent from 10.6 percent in May. A year ago, it was 8.9 percent.
Meanwhile, the loan approval rate for local and regionally based community banks also increased, jumping two points to 47.5 percent in June That’s a five-point increase from one year ago, when the approval rate was 42.5 percent.
Many of the loans originating with regional community banks have been Small Business Administration (SBA) loans that have helped the businesses on “Main Street” buy new equipment or expand a product line or service.
While community banks hold 39 percent of the nation’s banking deposits, they make nearly 80 percent of all SBA loans, making them a critical resource for small business access to capital since the financial meltdown of 2008 transformed the banking industry.
The most important thing is to find a bank that you will be comfortable dealing with when it’s time to start or grow your business. The Washington Business Journal recently polled a panel of experts about the questions a business owner or entrepreneur should ask to find the right lender. It’s a great place to start:
- Do you participate in the SBA loan program? This is the first question to ask any potential lender. If the bank says no, find another bank. If you need help finding a bank, call the SBA’s district office (608.441.5263), and the staff there will be able to offer three good lenders.
- What is your loan process? A key advantage many community banks offer is local decision-making. The loan is reviewed by people who have a vested interest in the success of the community. Many large banks rely on models developed without expertise in the local economy and committees located in central offices with no connection to the local community.
- What’s your level of SBA authorization? Is this bank a preferred lender? Preferred lenders have earned the right to make their own loan decisions and do not need to consult with the SBA for each loan. “Preferred lender” is the highest rank a bank can receive from the SBA.
- What has been your SBA loan volume for the past year? If the number is low, that could be a telltale sign. It means the bank might not have much SBA loan experience. Ask the bank for references.
- Who is the SBA specialist on your lending team? The regulations for SBA loans are different from those for other loans. It’s best to work with a banker experienced with the SBA Lending process.
- To what kinds of businesses do you lend? Just because a bank participates in an SBA program doesn’t mean it lends to all types of business.
- What is the collateral policy? A 7(a) loan, for example, could require up to 100 percent collateral. It’s important to understand what the requirements are and what that means for your property and assets. An experienced SBA lender will walk you through that process and provide you the information you need so that you completely understand the risks and benefits.
- Can you introduce me to other advisory resources? A good community banker is connected to a variety of specialists including accountants, attorneys, insurance specialists, consultants and non-bank lending sources, who can assist you with the specific needs of your business.
Using these questions as a guide will help you find the right lender for your small business. Your banker should be more than just a lender; they should also be a partner that can provide the financial advice you need.
Wenda M. Roycraft is the senior vice president of commercial banking at First National Bank-Fox Valley. Roycraft oversees the commercial banking functions from application to underwriting to servicing.