The State of Small Business Lending

Joining us today is our subject matter expert from Lendio, Brock Blake. He’s the founder and CEO.  Brock is going to talk to us today a bit about small business lending in America. Brock, thanks for joining us today. I’m excited to have you.

Brock:
I’m excited to be here with you today. Today, we’re going to talk a little bit about the state of small business lending across the United States. There is a tremendous amount of conversation happening, both in Congress, in the press, and on the streets of Main Street America about the difficulties of business owners getting small business loans.

It’s an interesting conversation right now, because what’s happening is you’ve got two conflicting viewpoints. You’ve got the banks and the credit unions across the United States that are saying, “Hey, we’ve got more capital to lend than we’ve ever had, for a long time. We just don’t have enough qualified business owners to be able to lend to.” On the flip side of that, you’ve got Main Street business owners across the United States who are looking for capital to start or grow their business, and they haven’t been able to get access to that. So there are these two conflicting opinions, and there’s a lot of data surrounding that as well.

We just got the SBA Quarterly Lending Bulletin, which, every quarter, the SBA produces this report on what’s really happening with SBA loans nationwide. Interestingly enough, a lot of press has taken this and run with it, because the overall outstanding loans have dropped about 2.4 percent from Q4 of 2010 into Q1 of 2011. There were about 624 billion loans in 2010, and it dropped to 609 billion loans in 2011.

What I think is maybe the most interesting thing about this information here is not that it dropped 2.4 percent, but the silver lining here is that loans with the smaller banks and community credit unions across the United States actually increased. So loans from lenders that have in assets from $1 billion to $9 billion remained pretty constant, but loans with lenders from $10 billion to $49 billion of assets actually increased by 3.1 percent in loans outstanding during this time frame.

The reason why there was a drop in small business lending was because the very largest banks across the United States didn’t approve as many loans. So there’s a lot to be said. Some people can look at that and say, “Well look, the small banks and credit unions are lending and they’ve got capital to lend. It’s a great time for a business owner to approach them to get approved for a small business loan.” You can also look at the flip side and say, “Well, total loans were down, especially with the largest banks, and a lot of people are banking with those larger banks.”

We think it’s somewhere in the middle. At Lendio, we feel like there is loan demand. There are plenty of small business owners across the United States that are qualified, that are looking for the right small business loan, but they don’t know where to find it. They don’t know which banks are lending. They don’t know that the smaller banks and credit unions are more active than maybe these larger banks and credit unions.

Then on the flip side, these banks and credit unions, what they’re saying is true. They actually do have capital to lend. Their credit requirements are a little bit more tough than they used to be, but at the same time, it’s about matching up the qualified business owner to the right bank or credit union to be able to make that happen.

Obviously, we’re biased; that’s what we do. We connect small business owners to the appropriate bank or credit union for the right loan product. But we feel like it is really about market inefficiencies right now. You can’t have qualified business owners that are saying there are no banks that are lending, and you can’t have banks and credit unions saying there are no qualified business owners. Both can’t be true. It’s just that there’s a disconnect and there are some inefficiencies in the market that we feel like we can make a huge impact and solve.

A lot of times, a business owner, the first thing they do is they just walk into their local bank or credit union and they haven’t done any preparation going into that, and they ask for a small business loan. The reality is that most of the time if that happens . . . in fact, I think the statistics are 9 times out of 10, they’re going to get declined. A business owner, there are many things that they need to do to be able to prepare themselves to be able to put their best foot forward when it comes to applying for a loan with a bank or credit union, and we’ll give you a few examples.

First of all, your credit is very, very important. You don’t have to have perfect credit, but you can’t have terrible credit. We say anything 650 and above, or probably 680 and above, you’re going to be in a pretty good situation to be able to get approved for a loan. In addition to that, banks and credit unions really are gauging your risk on your ability to pay back this loan. So anything that you can provide that underwriter to be able to show that you are a business that has revenues and you can repay that loan will certainly help your cause. A few examples might be a really solid business plan, a business plan that helps that bank or credit union underwriter understand what your business does, how you make money, how you’re planning to grow, what are your marketing strategies and various things like that. So that’s usually important.

Secondly, a lot of business owners forget, or maybe they don’t take enough time to prepare a really solid financial model to be able to help that underwriter understand, “This is how my business makes money. This is what our profits look like. This is my plan to be able to repay that back.”

If you prepare yourself well, put together a packet to be able to adequately show what your business does and how you can repay that loan back, you are much more likely to get approved for that loan, rather than just taking the lazy route and filling out a quick application and submitting it.

Mike: Brock, thanks very much for providing your perspective on this. Hopefully, this will help those out there that are looking to get a new small business loan be able to successfully establish that. I look forward to talking to you about our next topic. Until then, take care.