Are banks lending money? Many people today say no, but after a very enlightening interview with the Senior Vice President of a local bank, I would have to say yes. Banks do have money to lend to qualified applicants. Below is a list of questions and answers that will help define a qualified applicant.
1. What is your general job description?
I have 30+ years in the Banking Industry including commercial banking, business and corporate borrowing, cash management, and estimate and retirement planning. I currently work in commercial lending for Newbridge Bank trying to create/grow commercial loans.
2. What are the most challenging aspects of your job?
Much of the focus has been on re-financing loans to capture low interest rates. Things are going pretty well because rates are very low and there are lots of quality applicants.
A challenging part of my job stems from their being a small market with lots of people “fishing in a small pond.” There is a lot of competition which creates a big benefit to the applicant. Banks are competing for quality accounts.
3. How have lending practices for small businesses changed?
The process of evaluating loans has changed. An important factor is cash flow coverage. Banks are looking for a primary source of re-payment or cash flow coverage, and a secondary source of re-payment such as collateral. The strength of the guarantor (Liquidity such as cash, stocks/bonds) is also an important factor.
4. What is the first thing a business owner needs to do if he/she expects to seek a loan in the next 6 to 12 months?
1. Put together a team of people you trust for advice – Banker, CPA, Attorney, …
2. Understand your business.
3. Understand Cash Flow.
4. Have more cash than you think you will need. It always takes more than you think.
5. How does the business cycle impact new vs. established businesses?
Where the business is in the business cycle determines how the account is handled. With new businesses, funders only have the Pro Forum to go on.
6. How do credit cards – even those without a balance – impact a loan application?
Personal cash flow and Business cash flow together make up the Global cash flow.
Both personal and business cash flow have to be good. One can hurt the other.
7. If a person has previously filed bankruptcy, does it prevent them from getting a loan or increase their interest rate?
A recent bankruptcy can kill the deal. Bankruptcy will stay on your credit report for 7 or 10 years depending on the type of bankruptcy. The farther away from bankruptcy you get, the more likely you are to get the loan.
8. If an applicant is turned down for a loan, how can he/she re-group and come back to try again? How long should he/she wait?
If it is a startup company, they should do their “homework” including a feasibility analysis before they go talk to a banker.
If they have been turned down for a loan, they might ask the banker for help to understand what the problems were. Then, go back and work on fixing the problems with specific outcomes. It might even be a good idea to talk to a second banker.
9. Credit history of the business and/or the owner(s) plays a heavy role in assessing risk, how do lenders use the score? Is collateral the only “offset” to a low or poor credit history?
Lenders use personal finances and business finances. Credit is only one part of the puzzle.
The puzzle might consist of credit, cash flow, and collateral. The value of collateral is hardly ever worth what a person thinks it is.
10. What services are available – directly from lenders or from other businesses – which improve the chance of getting a loan or the terms of the loan?
Several options include:
A. N.C. Loan Participation Program (North Carolina Rural Economic Development Center, Inc.) helps lenders make more business loans by reducing the lender’s risk.
B. Small Business Administration – 7A Guarantee Loan, 504 Loan Program
