Thoughts on Small Business Lending
First, I don’t believe the government should be the ones telling banks what to lend or not to lend. The banker is the one that needs to decide if someone is a good credit risk or not based on what level of risk they want to or can take on at the time they are going to lend.
The challenge however is what people consider small business. Politicians are always so tricky with how they use their words. Small business is so broad it could mean a 1 person operation working from home up to a 499 employee company with six locations in 3 states generating $50,000,000 in revenue.
The small business owners who really need access to capital right now are the ones that are the highest risk and the least likely to get financing. These are the 1-5 employee companies under five years old. They see the opportunity to grow and add jobs by taking market share from other companies that are struggling to keep the doors open because they grew too fast or had too much overhead. These small business owners can really drive the local economies and initiate job growth again. The challenge is they aren’t qualified businesses or borrowers 80% of the time. They either have low FICO scores or their financials don’t justify the loan amount they want or need. Most of these companies are seeking $25,000 to $250,000.
When I talk to the banks about programs for these companies they send you to their credit card division where the approval process is strictly driven by FICO score and years in business (which these clients lack.) The government and news talk about small business lending and getting it going again, but what they refer to are the companies with 100-500 employees and are looking for $500,000 – $5m in loans. I’m sure these companies can help create jobs also, but the reality is there are A LOT more 1-5 employee companies than 100-500 companies.
The SBA community express loans do help the smaller 1-5 person operation but most small entrepreneurs aren’t aware of these loans and banks aren’t interested in spending a lot of time writing them. It is still a lot of paperwork with little money for the bank, so they prefer to write larger loans and lower their risk with bigger companies. I don’t blame them for that. A great resource for the 1-5 person business is friends, family and smaller angel investors. They can even look at peer to peer lending sites such as www.prosper.com.
So in my opinion the politicians are just a lot of talk, posturing to look good in the media so people think they are “small business” friendly. It’s actually an oxymoron to say politician and “small business friendly” in the same sentence. Government won’t create the free market jobs, they just need to get out of the way and let the small business owners do it themselves.
Crowd Funding Book by David Gass
4 comments
Hello, David Gass I am happy to be part of the progarm and can’t wait to meet you in person. with all do repect I agree with 95% of what you are saying. It sounds like you are with the banks on not lending money or giving credit to small businesses that aren’t qualified businesses with low FICO scores and I agree. Maybe there needs to be restruture between the borrower and the banks in order to help first time small bussinesses to help improve confidence and trust in giving loans to first time small businesses. one way we can do this is by having a small business expert advisor like your self David and your company. Sending the banks a quartly report for the next 2 to 3 years agreement for a start up business in the growth of the business and that the I’s are dotted and the T’s are crossed, If the banks even care about that. I think that this is essentials on making a impact on the banks. Michael Flowers
Thank You
I would be cautious about your “broadbrush” attack on government not able to aid small businesses. The government agency I work for, the Urban Redevelopment Authority of Pittsburgh, provides low interest, gap financing for small businesses. Most of our loans go to “small” businesses as you define. We typically lend to 40-50 businesses a year and we believe our programs have made an impact, particulalry in many hard hit, inner city neighborhoods. Take a look at our website and statistics on small business lending. Then sharpen your pencil and take a closer look at government and non profit groups like ours that are picking up the slack of banks who are not lending at this time. I think you might be surprised…..
Best regards,
John Burke
Sr Business Development Speclt.
Urban Redevelopment Authority of Pittsburgh
200 Ross ST.
Pittsburgh, PA 15219
412.255.6556
I have tried on multiple occasions to get loans through the SBA and the reality is that they are more interested in signing you up for a seminar and making money than helping you get money.
Thank you Davide Gass; keep doing what you do!!!