If you’ve tried to get a business loan in the last 12 months, you may have noticed that credit underwriting standards are tighter than ever. Getting approved for a business loan is difficult even for companies with good credit.
That’s because it typically takes banks six months to react to an economic downturn, so businesses are feeling the effects of the recession that began 18 to 24 months ago, depending on whom you ask.
“Experts say the recession started two years ago, and six months later, credit started tightening,” confirms KeyCorp Akron District President Tom Tulodzieski. “Any time the economy goes into a recession, it’s quite natural for banks to start tightening their credit standards. Throughout the last 12 to 18 months, nonperforming loans at all banks across the county have been going up significantly, and that causes a credit tightening.”
There is hope, whether you’re applying for a new loan or having trouble meeting the terms of an active loan. In either case, Tulodzieski says, you can help your situation by communicating with your banker. If you already have a loan:
* Be up front and candid. Keep your banker up-to-date on what’s happening within your company and your industry.
“If a company is going through a difficult time, that should never be a big surprise to their banker,” Tulodzieski says. “When it is a surprise, that’s when things can start going sideways.”
* Discuss measures you’ve taken to try to curtail the downturn. For instance, tell your banker the recession has affected sales, and share what you’re doing to combat that.
“Have a good game plan as to what you’re going to do to enable your company to get through this,” he says.
If you’re applying for a loan:
* Give your banker historical financial data that show a track record.
“We always like to see the last three years of financial statements and their most current interim financial statements,” Tulodzieski says. “That gives the banker a barometer as to what kind of performance they can expect from that company.”
* First approach the bank with which you already have a relationship.
“During a recession is probably when your relationship with your banker is tested the most,” Tulodzieski says. “It’s very easy when we’re in a boom economy to go to your banker and ask for money. It’s during times like this that if you do have an established relationship with a banker that it pays dividends.” How to reach: KeyCorp., (330) 379-1446
