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Finance: Banking on the Future of Small Business

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Banks are making efforts to loosen up lending to small businesses—but it seems it still isn’t enough. The Wall Street Journal recently

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took a look at the state of small business lending and what banks are doing to improve it.

Some of the not-so-positive stats from the Journal:

  • According to the Federal Reserve, 10 percent of large U.S. banks said they had eased loan terms for small businesses in the past quarter, compared with almost 20% who had done so for large and midsized companies.
  • According to Equifax Inc. and Small Business Financial Exchange, the number of small-business loans/lines of credit extended in the third quarter of 2010 was down more than 70% from before the Great Recession.
  • According to the National Federation of Independent Business, as of January, 91% of small businesses either didn’t want to borrow money or had all their credit needs met.

Even if small businesses aren’t ready to borrow, banks are ready to lend. At Wells Fargo & Co., small business loan-approval rates were up 18 percent in the fourth quarter of 2010 compared to the same quarter of 2009.

So why aren’t small business owners biting? As an entrepreneur myself, the weak demand for loans doesn’t surprise me. Many small companies became gun-shy of loans during the depths of the recession when their loans were called in or lines of credit slashed for reasons they didn’t understand. If it didn’t happen to you, it might have happened to a colleague of yours. Without loans to rely on, we learned to rely on ourselves.

To drum up demand, banks are practically beating the bushes for small business customers. Examples the Journal cites include a regional bank that’s cold-calling small businesses; a new software program from Bank of America that makes it easier for bankers to offer credit cards and other financial products to small business owners in certain branches; and banks giving more weight to quarterly reports, booked orders and projected sales. Bank of America will add 1,000 small business bankers in the next 18 months, and U.S. Bancorp is training employees at most of its supermarket branches to make small business loans.

As banks seek to extend help to small businesses, it’s worth asking what your bank is offering. With so many banks going out of their way to woo you, if you’re not getting what you need at your business bank, start looking for greener pastures.

Even if you don’t need a business loan, now is a good time to examine your options. Some of the other products and services banks can offer include business checking, payroll services, business credit cards. Of course, a good banker can also be an advisor to your company, listening to your needs, suggesting the products and services that match your goals, and matching you with other professionals who can help you achieve your business dreams.

The mentors at SCORE can help you achieve your dreams, too. Find out how to get counseling 24/7 at the SCORE website.

Rieva LesonskyCEO, GrowBiz Media
Rieva is CEO of GrowBiz Media, a content and consulting company specializing in covering small businesses and entrepreneurship. She was formerly Editorial Director of Entrepreneur Magazine and has written several books about small business and entrepreneurship. | @rieva | More from Rieva

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Discussion (5) Comment

  1. It’s five months later since this article posted and I wonder if they’re seeing an uptick yet. My guess is, no. Small businesses act like consumers and we already know that most people are now more fearful of carrying debt.

  2. JustinVisitor

    Very interesting article. And right on the money. Thanks for sharing.
    But I do want to add that even if a business feels that they don’t need a line of credit at this time, now is the time to apply while you can qualify. You never know what the future holds, and it never hurts to have that safe cushion for when the rainstorm comes.
    That’s why squirrels gather an overstock in nuts in the summer, to prepare for the winter; same concept.
    Just speaking out of experience.

  3. i found this article very useful!

  4. Lorelei BarbishVisitor

    I concur what a mighty thoughtfully written article, thank you for writing it.

  5. JohnVisitor

    Hello! Interesting site!


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