Saturday, July 10, 2010

Disconnect Seen Between Small Business Needs and Availability of Credit

While there are signs of the beginning of an economic recovery, many small and mid-sized companies are still finding it difficult to meet banks' tightened credit standards. This trend is reinforced by both a recent Greenwich Market Pulse Study as well as recent findings by Barlow Research which found that even though banks have a need to generate more loan relationships, more than 50 percent of small businesses say it is harder to secure credit this year than last. This would be in line with an American Banker study earlier this year that found that close to three-quarters of the U.S. banks had 'significantly tightened' their credit standards.

As a result, many small businesses are using personal savings and credit cards to fund growth. For those small businesses applying for credit, many are asking for unsecured personal lines which usually have tighter credit criteria and a higher likelihood of denial.

This tighter credit market could stifle the growth potential for those firms that could otherwise be well positioned to benefit from and contribute to the economic recovery. In fact, Greenwich Associates consultant Chris McDonnell states that a slight rebound in the perception of credit availability that began last year has now stalled, which could also end up reversing a recent uptick in economic optimism shown by both small and mid-sized businesses.

This lack of credit availability is likely also in part responsible for the lower satisfaction ratings that both large and mid-sized banks are receiving as well as the increasing percentage of firms who state they are looking for a new financial provider or are willing to consider a new provider if a compelling offer can be presented.

For those banks willing and able to lend to both small and mid-sized businesses, there can be a huge 'first mover' opportunity to win a larger share of new business at competitive margins. In addition, with more businesses dissatisfied and in the market for a new financial partner, loyalty to banks that provide funding for growth will be long lasting. This first mover advantage may be short lived, however, as the government may be close to approving a $30 billion small business lending fund which is expected to stimulate the supply of credit.

Is your bank changing their view of small business credit? With so many small businesses looking to potentially change financial institution relationships, how is your bank positioning itself to take advantage of this opportunity?


  1. Yes that's true,small companies are still finding it difficult to meet banks tightened credit standards and incorporating a small business can be an exhausting and overwhelming process.Where to start? What to do next? Where can you find relevant resources?and many more things.
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  2. I just interviewed CEOs and CLOs from banks and credit unions across the country. They all agree...if a business is strong they should have no trouble getting a loan. Many small businesses that have adequate capital and recent positive operating results are not seeing the strong buying signals, yet, from their customer base to gear up.

    Those small businesses desperate for loans, in many cases, have recent poor operating results. The banks either can't take a chance or don't think they could pass muster with the regulators on those loans.

  3. I agree. But as I travel across the country all of my clients agree that their credit standards have been adjusted upward at a time they are all hungry for loans. This is not necessarily bad since they need to be juditious with the review of small business needs and ability to repay, but there is definitely room for more innovative loan options, ways to secure, etc. The payoff in terms of relationship protential and even word of mouth has probably never been greater.