State of Small Business Lending: Better or Worse Than Last Year?





Has the state of small business lending gotten better or worse since last year? The answer depends on who you talk to.

Confused?

The answer to the question “Are banks finally starting to lend again?” also varies based on what’s being written and where. Even Small Business Trends’ own Scott Shane weighed in.

For example, according to a recent survey given to members of the International Franchise Association, 39 percent of franchisors report that more than half of their franchisees and franchise prospects are unable to obtain needed financing – up from 33 percent in a similar survey last November. Only 5 percent report their franchisees and prospects have had no difficulty with credit access, compared to 8 percent in the November survey.

Money Conversation

Compare that negative news with a story I just read in the Dayton Daily News about Chase Bank:

“Chase said Thursday it loaned $505 million to small businesses in Ohio last year, marking a 30 percent increase over 2009.”

The article also stated that according to bank executives, Chase made loans to 9,800 small businesses with annual revenues of less than $20 million.

Even more positive was the fact that Chase (according to the article) added more than 500 business bankers and created what it calls a “second-look” program to look for ways to extend credit to companies whose initial loan requests were rejected.” (Read The Dayton Daily News article.)

An increase in small business lending in Ohio, which is a state absolutely ravaged by the economy, is certainly great news. But let’s go back to the IFA survey again:

“60 percent of franchisors say they have seen no improvement in credit access in recent months, compared to 65 percent who reported the same conditions in the November survey.  Only 3 percent report they have seen a significant improvement in credit access compared to 1 percent in the November survey.”

You can read the IFA survey for more information.

Do you see what I mean?

Now, it’s not like The White House and the Small Business Administration aren’t trying to help improve small business access to capital.

There’s Startup America, which is the White House initiative to “celebrate, inspire and accelerate high-growth entrepreneurship throughout the nation.” As was explained in a recent private conference call with the Small Business Administration (several Small Business Trends writers were invited), the SBA’s Reducing Barriers website was created so that anyone can submit their answer to this really important question, posted right on the website: “What concrete ideas could reduce federal barriers for entrepreneurs trying to start and scale companies?”

One look at the ideas submitted to the site so far shows that most of the ideas have to do with improving access to capital.

Recently, the Business.gov website was merged with the SBA.gov website and totally revamped. The focus of the new site is easy access. The Small Business Administration is really trying to make the process of getting capital a lot more streamlined. The new site is a lot friendlier to people who are looking for information about getting small business loans (or any kind of small business information). All they have to do to get started is go to the section of the site named SBA Direct and type in their ZIP code. Go ahead and try it.

Not only is the SBA trying to make things easier for current and future small business owners, they’re trying to make things a lot simpler and more streamlined for banks, too. They recently rolled out a section of their website devoted solely to lenders — The SBA Lender Toolkit. Look at what it includes:

  • Find a Loan Package, which allows users to select a loan type and download all the associated forms so they can prepare more accurate loan applications
  • Find a Service Center, which enables the lender to search for service centers based on loan processing parameters, loan type and stage
  • Lender FAQs, which helps lenders get answers about the SBA’s approach to financing and underwriting loans
  • Weekly Lending Report, which provides updates on interest rates and important lending news

The SBA is certainly going out of its way to cut out some of the bureaucracy that has existed for years and get things moving in the right direction.

The credit crunch has been going on for a solid two years now. It feels like the entire small business community has been mobilized to get the lenders lending again. Let’s hope that they start doing what they’re paid to do — lend.

9 Comments ▼

Joel Libava - Franchise Expert


Joel Libava Joel Libava is the Franchise Expert for Small Business Trends. Joel, The Franchise King®, equips today’s prospective franchise owners with time-tested, proven techniques designed to increase odds of success. He does this through one-on-one coaching, and gobs of useful content that can be found on places like Small Business Trends, SBA.Gov, and his award-winning franchise blog, The Franchise King Blog . He’s been featured in Entrepreneur® magazine, and is frequently called upon by national media outlets and publications for his no-spin insights into the world of franchising.

9 Reactions

  1. Hi Joel – Now this is an area of business I always feel so uncomfortable about. You can say that I’m petrified of anything having to do with lending or banking. Thanks for giving this issue perspective and context.

  2. Ivana,

    Hi stranger!

    Thanks for chiming in. It’s been a struggle the past couple of years with some of the banks, for sure.

    The Franchise King®

  3. Chuck Blakeman

    The reason there is such a disconnect between Chase’s statement of how liberally they’re lending to small businesses and the experience of potential franchisor’s rest solely on the definition of small, which is why I am working so hard to abolish the SBA (or at least re-name it the MLSBA – mid-to-large size business administration.

    True small business owners with fewer than 15 employees are having the experience of your potential franchisors. That is the real data. But the SBA and giant banks get to confuse the issue because when they say they are lending to small businesses, they mean any business with fewer than 500 employees, which includes 99.94% of all businesses in America.

    Of the 28+ million businesses, only 17,000 fall outside the SBA (and Chase’s) definition of “small”. This makes “small” virtually meaningless, but extremely convenient for politicians, the SBA and giant banks. They all get to use this definition and claim from the rooftops what they are doing to be the saviors of small business. Then they trot out another large business with 235 employees as the example of who got help.

    Until we have a sane definition of small, all data on “small” gathered from the SBA, giant corporations and the politicians must be treated as meaningless. We don’t call everyone under 7′ tall “short”, and we can’t call 28 million out of 28.1 million businesses “small”.

    So with that meaningless definition of “small” in mind, there is no way to say that the SBA is doing everything it can to remove obstacles to lending to small business. They don’t even know what one is.

  4. Joel
    informatve article. It highligts the frustration that was evident at the recent lending summit that was convened in Washington DC by the IFA. To a person,the bankers in attendance stated they wanted to lend. Franchisors, on the other hand are looking for “programs”. Bankers want “relationships” meaning that if there isn’t a checking account, cash management, and the opportunity to sell other banking services then they are not interested in doing a loan. The Administratio was represented by Karen Mills, SBA director and Donal Graves from the President’s job council. Their view of the world regarding lending and the role of the SBA, was diametrically opposed to that of the audience and many of the bankers that were in attendance. What the franchise industry really needs is the re-emergence of the non-bank “institutional lenders”. Those great 3rd party programs that operated in all 48 contiguous states and weren’t restricted by a geographical “footprint” nor burdensome regulatory and compliance issues. Those big players are either gone or merely a shadow of what they once were. Until that occurs franchisors and franchisees will continue to work to define “The New Normal”. In my opinion it will be franchisors working with investors to form “captive” finance companies and\or identify other risk sharing programs that will help them get their franchisees open and operational. Franchisors that embrace these ideas will be able to find financing for their franchisees and engineer growth. Those who don’t will continue to have a difficult time finding financing, especially for newer franchisees.

  5. Thanks for weighing in, Chuck.

    I feel that the SBA is really starting to “get it.” (A lot more than they did 10 years ago!)

    I know firsthand, that they are working their tails off trying to persuade banks to start lending money again.

    The problem is not with the SBA; they’re not the lender.

    One of the biggest problems, and it’s one that’s not being discussed, is that a lot of these banks still have tons of toxicity on their books, and they can’t dump it too fast-or red flags could be raised.

    I’m angrier at The International Franchise Association, (a lobbying group) for not being able to use their members money in a better way; like figuring out how to REALLY get the lenders lending to would-be franchise owners.

    They just held a “Lending Summit,” and while it may have been good, it was about 2 years overdue.

    If I was an IFA member, I’d ask for a refund of my dues for the poor job they’ve been doing with regards to franchise loans.

    Chuck, blaming the SBA for the lack of available credit is like blaming McDonald’s for our country’s obesity problem.

    The Franchise King®

  6. We believe that the real small businesses (50 or less employees) are really in a crunch. Most of the stats I see about small business lending are the very top end of the “under 500 employee” mark.

    This group is maxing credit cards, tapping personal assets or doing without.

    How about a community lead effort where individuals participate in helping small business borrower?

    As 20+ year small business entrepreneurs, this is solution we think can help and are in the process of launching an effort May 1st to address this idea.

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