Despite the trend toward more conservative lending practices, banks are still making loans to strong businesses looking to grow, says James Eccher, president of Old Second National Bank.
“There are definitely tighter lending standards today than there were in the last several years, and many banks are looking inward, trying to shore up their balance sheets before they really go out and look for new business opportunities,” says Eccher. “But for a large number of banks, to some degree, it’s business as usual.”
Smart Business spoke with Eccher about how to obtain financing in difficult economic times and what struggling companies can do to position themselves as viable candidates for loans.
Are banks still lending to businesses?
Credit is abundant. And while there are some banks that aren’t lending, many are still looking to lend money to credit-worthy clients. The caveat, though, is that businesses must have strong cash flow, solid collateral and be able to provide a personal guarantee.
There is no conventional loan program out there today for struggling businesses that are looking for relaxed underwriting standards. If a business is unable to secure traditional bank financing, it may seek financing from other sources, such as private equity partners or, in some cases, consumer finance companies. But it is not true that banks aren’t lending. Lending is the lifeblood of a bank’s business; that’s how a bank generates a great deal of its revenue.
Banks want to lend, but they are being more careful when extending credit.
What can a business owner do to prepare for a successful meeting with a banker?
Businesses can make a great first impression by preparing a portfolio that includes a comprehensive business plan, business and personal financial statements, forecasts and past tax returns. Immediately lay out the challenges the business faces — don’t make the bank uncover problems by looking through the file.
Transparency is always the best policy. If your business has experienced challenges, identify solutions and a turnaround plan. How will 2010 be different than 2009? Will you add a new service, or extend a product line, or reach a promising new customer demographic? Tell your story.
In turn, the bank should be listening, providing suggestions and selling its services to you.