Almost two years after the start of one of the worst recessions in decades, many business owners and entrepreneurs continue to feel shut out of the credit markets.
Locally we've witnessed painful and troubling stories of responsible, well-intentioned business owners who – through no fault of their own – were trapped in an extraordinary banking and financial industry meltdown.
For those unfortunate enough to get caught in the middle, access to working capital lines and lines of credit disappeared virtually overnight. It's a harsh reality no one, especially a banker, can deny.
Yet, during the past several months I have seen time and time again the ability of qualified borrowers to access capital lines, renew existing lines of credit and borrow money for growth and expansion purposes. Community banks have stepped up to the plate to help local businesses survive the turmoil of the past twenty-four months; indeed, the reality is that banks eagerly wish to lend to qualified borrowers. Unfortunately, misperceptions of "credit availability" occur when business owners and bankers have differing opinions on what "qualified borrower" means.
So rather than debate whether credit is (or is not) available, I'd prefer to provide a perspective on what business owners can do to demonstrate credit worthiness:
- Strong business plan: Share a detailed business plan with measurable and understandable sources of repayment and proof of strong management on the team. Even without a proven record, a strong business plan can exhibit an in-depth understanding of the marketplace and how the business can succeed.
- Document cash flow: Cash flow sits high on the list of important factors for loan approval. Detail where revenue comes from and how business income is affected. Also clearly outline fixed and variable expenses.
- Meet with your banker: Before applying for a loan, meet with a banker to determine the appropriate loan products. Bankers will often suggest a specific product based on needs and qualifications.
Additionally, many small businesses have found relief with the U.S. Small Business Administration's new lending guidelines, which took effect in February of this year. With 7(a) loans, for example, the SBA has increased its guarantee to 90 percent of the loan amount; the agency has also eliminated loan fees, which can amount to as much as 3.5 percent of the guaranty amount.
No doubt the discussions around credit availability will continue, with strong opinions being voiced on both sides of the debate. Regardless, it's safe to say bankers, business owners and entrepreneurs look all forward to the end of this recession.
Kristy Weaver is a senior vice president and business development team leader for Pacific Continental Bank, specializing in business banking for professional service providers, community-based businesses, nonprofit organizations, business owners and executives: www.therightbank.com or (360) 695-3204.
