Growing evidence indicates that lenders, especially smaller banks, are starting to approve more loans to small business owners.
The pipeline to cash snapped shut to all but the most creditworthy borrowers when the 2008 financial crisis hit. And while lenders even now demand solid financials, bankers who once stood on the lending sideline are now learning to say yes again.
Earlier this month, the U.S. Treasury Department announced a $205.3 million increase in small business lending at North Carolina institutions that got money through the Small Business Lending Fund. Nationally, the increase was $7.4 billion.
One North Carolina bank – Live Oak Bancshares in Wilmington – increased small business lending by 129 percent (from $53.7 million to $122.8 million) after receiving $6.8 million in government loans.
Park Sterling Corp., which last fall bought Citizens South, increased its small business lending by 38 percent, from $118 million to $163 million. (To measure increase, the government compared small business lending as of Sept. 30, 2012 to a four-year baseline average that ended June 30, 2010.)
Congress established the lending fund in 2010 to encourage community banks to do more small business lending. A total of $30 billion was offered at low rates to institutions with assets below $10 billion.
Only $4 billion in fund money was actually distributed to lenders, which led some critics to label the program a failure. But Jason Tepperman, a Treasury employee who directs the fund, disputes that characterization.
About 333 institutions received money under the program, he said, and 89 percent increased their small business lending. Seventy-eight percent increased lending by 10 percent or more. “We have found the results to date to be very encouraging,” Tepperman said. “These are increases that are meaningful advances in small business lending in communities across the country.”
At Park Sterling, which received $20.5 million in lending fund money, bankers were sent out into the community with special low-rate loan offers, said Don Flowe, the bank’s regional market president.
“The government gave us a good rate, and we passed it on,” he said.
Flowe said the most popular category of loan was for owner-occupied buildings. Recipients included lawyers, accountants and even a convenience store owner. In most cases, he said, borrowers used the money to buy or renovate their buildings.
Like other lenders we spoke with, Flowe said his bank looked for borrowers with good business plans and solid credit records.
Ted Zoller, a professor of entrepreneurship at the UNC Keenan-Flagler Business School and director of the Center for Entrepreneurial Studies, said that despite a “substantial” increase in small business lending, most of the nation’s big banks have been slower to follow. They also are demanding quality financials before approving loans.
Zoller offered these tips for seeking cash:
• You will need strong financial documents. If possible, have a CPA set up your accounting system and use a bookkeeper to make entries. Despite the lending uptick, bankers still aren’t taking great risks.
• Start with high net worth individuals in your community. Low interest rates mean wealthy individuals may be more willing to lend to small business owners with a hope of getting higher returns.
• Consider crowdfunding, or the use of the Internet to raise relatively small amounts of money from large numbers of people. Under a law enacted last spring, businesses are allowed to raise small amounts of equity capital over the Internet without going through normal regulatory procedures.
• Forget the myth about funding a business on a credit card. Given the high interest rates, Zoller called that option “irresponsible.”
Glenn Burkins is editor and publisher of Qcitymetro.com, an online news site targeting Charlotte’s African-American community. He is a former Wall Street Journal reporter and Charlotte Observer business editor.