Small Business Lending is Bouncing Back

Recent reports show that small business lending is bouncing back, and analysts think this is happening for a couple of reasons. First, small businesses are reporting steady profits. The economy has bounced back a bit, and small businesses have booked some years of consistent growth. As a result, banks feel more confident about lending them money.

Second, home values are increasing. Most small business owners use their homes as collateral for their small business loans or lines of credit. After the real estate bubble burst and home prices plunged, banks wouldn’t accept underwater mortgages as collateral. Now that home values are steadily going up, more small business owners can use their homes as collateral.

To improve your chances of getting a loan for your small business, follow these four key steps:

1. Target multiple lenders. Assemble a list of up to five banks that might be willing to lend money for your business. Start at your own bank or credit union, and then consider other local banks in your area. Look for lenders who extend loans backed by the SBA, which can make them more comfortable taking a chance on your business.

2. Prepare for your meeting. Be prepared to discuss the following information when you meet with your loan officer:

• Why you’re borrowing money. Explain why you need the money whether you’re starting a new business or purchasing something for your current business.
• How you’ll use the money. Bring in cost estimates or price quotes to show the lender exactly where your money will go. If you’re just starting your business, bring in a detailed business plan.
• How the loan could grow your business. If you’re financing a startup, explain how your company meets an economic need. When purchasing new equipment, explain how the new equipment would contribute to your future profitability.

3. Bring documentation. Bring your small business tax records, profit and loss statements and bank statements. Also, bring documents that demonstrate your own personal financial situation including pay stubs and statements for personal assets and liabilities.  It is crucial you have accurate bookkeeping systems in place as lenders use this as a tool to evaluate your business.

4. Shop around. Many small business owners grab the first loan they can get, and they end up paying more than they should. Don’t hesitate to discuss your loan with multiple lenders. Compare terms and interest rates, and choose the loan that’s best for your company. If one lender says “no,” then ask another one. Be persistent to get the financing that you need. If you need advice, visit your local SBA or SCORE office.

America’s small business lending environment is finally improving. Don’t hesitate to ask for your piece of the pie.