One of the biggest mistakes we see many entrepreneurs make is that they are submitting their commercial loan request to banks that are out of the market and not closing any deals. The borrowers may have a good loan requests but the banks they are dealing with are really just sitting on the “side lines” either waiting for the market to return or waiting until they are HEALTHY enough to lend. Many banks do want to do loans, but they have their own internally issues to deal with, such as high default rates or that they are in violation with the FDIC’s regulations. We estimate that 70% – 80% of the small business banks out there are not seriously doing loans.
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This is a tough problem for business owners to avoid as it is hard for borrowers to really know what is going on internally at a bank (See solutions below to see how to research banks and get inside information on them). The loan officer is likely a commissioned employee and is trying his best to close loans and may “stretch the truth” to borrowers to drag them along, until the bank officially declines the loan request.
Borrowers have to do everything in their power to make sure the lenders they are working with are in fact doing deals. Here are best solutions we now of, to this all to common problem.
SOLUTIONS – Research Your Bank First
Banks are required to report to the FDIC. Similar to public companies their internally information is public. Spending time researching banks can pay off big time. Here are some online tools that can make your research easy:
- Bank Tracker is an outstanding tool that follows every bank in the nation. It gets its data directly from the FDIC. It creates and tracks a “troubled asset ratio” for each bank. This ratio essentially compares a banks defaulted loans, to its healthy loans. Higher values of this ratio indicate that the bank is under more stress. Which, in general indicates that they are less likely to fund new loan requests and or that they maybe in danger of being seized by the FDIC (Especially for banks with ratios over 100). Go to here to begin your FREE search:
- Bankrate.com has put together an outstanding research tool where you can produce a complete financial statement, memorandum, commentary and analysis on each individual bank. The information is presented in a very clear and efficient way, normally on 1 to 2 pages. They also have a 5 Star rating system, which makes it much easier to get a feel for the strength of the bank you want to research. A great FREE tool!
- If you are considering an SBA loan you can go to your states SBA website (just type in “Michigan SBA Lender List” for example, in your Google search) and get lists of the top funding lenders in your state. They normally list the most active lenders by loan amount, and by number of loans for the previous year or quarter. Because this is historical data you need to make sure the lender is still active, as they may have recently slowed down.
- Go direct to the FDIC website. http://www.fdic.gov/ Here you can do a tremendous amount of research on each individual bank. Note however, that the site is a little difficult to use. For general research we recommend the above Bank Tracker or Bankrates.com sites.
- Read your paper and or go through the archives to see banks that are advertising and or have pr pieces that indicate that they are still doing loans.
- Talk to your peers (fellow small business owners, CPA, loan consultants, attorney, Chamber, etc) to see if they have heard of anyone getting loans done. If so find out who funded their loan request.
- Interrogate the loan officer at the bank you are about to commit to. Ask them many questions about how active they are - dig deep. Such as how many loans his division has closed last month, last quater. Find out what type of collertialer they lent against, was it only the strongest borrowers out their, such as medical office buildings, or did they do any less than perfect transactions? Try to determine out how aggressive they are really being.
When To Move On To The Next Bank
All in all, be prepared to MOVE ON! Many borrowers submit their loan to a bank and sit in limbo for months, waiting for them to make the initial credit decision. This can be a huge waste of time. Remember, you may have a strong loan request and are just talking with the wrong lender, for your specific loan.
For example, virtually every loan we close has been declined by 3 -5 banks.
Also, keep in mind that just because a bank is healthy per the above research methods, it DOES NOT mean that they are in fact lending (sorry). They could just be waiting out the market. However, if they are seriously in trouble, you can be certain to avoid them, even if they are saying that they are doing deals.
You have to trust your gut on this one, as there are no set clear answers. If you have that feeling that you are getting the run around by a lender you probably are! As mentioned above, ask your loan officer for specifics on how many commercial loans they closed in your market last month, over the last quarter, etc. Is he hesitating? Try to get names of businesses, addresses, make him convince you that they are REALLY closing loans. If you’re not convinced, move on! Don’t waste your time or money on banks that are dormant.
Continuation of Report: Other Common Causes of Small Business Loan Decline and Their SOLUTIONS
- Small Business Loan Help Beginning of Report
- Dealing With Bankers An overview of how an imperfect loan submission process works, and strategies on how to overcome it.
- Commercial Loan Solutions General Overview of most of the Solutions.
- How To Research Banks & avoid working with SICK banks.
- High Loan To Value How to deal with being over leveraged.
- Declining Gross Revenue Get over declining gross sales.
- Disadvantages & Advantages of Partnerships Specifically related to loan requests
- Low Business Cash Flow AKA low debt coverage ratio’s & what potential solution are.
- Low Liquidity or to little cash, relative to the loan request.
- High Personal Debt your personal expenses have a big impact on your cash flow, see some solutions here.
- Bad Personal Credit Scores Best solutions to getting over low credit scores.
- Business Debt Consolidation Loans have their own set of issues, learn best solutions here.
- Problems With Other Sources of Income also referred to as Affiliate.