National vs. Community Banks: Where to Apply for a Small Business Loan?

For small business owners, getting a loan from traditional lending institutions such as banks is very difficult, if not close to impossible. This assertion, however, is contrary to the claims of bankers who insist that the number of loans granted to small businesses have already increased. So who’s telling the truth?

Initial survey of the situation shows that a lot of national banks have decreased the number of loans granted to small companies and startups. Moreover, some small business credit cards also decided to close its customer accounts.

However, on the other side of the spectrum, a survey of lending conducted by the Federal Reserve revealed that the condition in most cases has already loosened. In addition to that, Small Business Administration also showed an increase in the volume of loans granted to small business. Community banks added that they are ready to accept applications from those who were shunned by the larger banks operating nationwide.

So on one side we have information saying there is a decrease in the number of loans granted to small business, while on the other we have contradictory figures that show an upward trend. The question is fairly obvious, how is that possible?

Observing the data provided might be the key to this phenomenon. Indeed, large national banks are turning away a lot of loan applications in an apparent bid to preserve their capital. On the other hand, however, smaller banks that have traditionally made a living on small business loans still approve a lot of application. In a nutshell, it appears that it is still business as usual for the community banks.

This claim is proven by a survey conducted by Barlow Research Associates which showed that small companies that are applying for loans have higher chances of getting credit in smaller community banks than in larger national banks. This information is essential for small businesses out there

According to several bankers, the lack public knowledge about this issue led to a number of complaints from small business owners who insist that there were no loans available. Surveys even revealed that many have insisted on this assumption even if they have not applied for credit in the past year. A bank official said that the idea that there were no available loans may have been seeded by those who were turned down because of the usual banking reasons.

Whether there is a credit crisis or not, small business owners should know the usual business measures implemented by lending institutions such as debt-to-equity ratio and net margins. Moreover, they should be able to provide satisfactory information with regard to how they plan to use the money in case their application is approved.

Moreover, bankers and potential borrowers alike note how the human element in the agreement is as essential as the technical aspects of the lending market. After all, establishing a good relationship with the banker would help small business owners in their bid to get their loan applications approved.

Nevertheless, despite the looser lending system in community banks, small business owners should keep in mind that their applications will still be scrutinized, especially by the banks that have started to adopt the formula used by the national banks.



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