For people outside of commercial banking, applying for a loan can be intimidating. If you understand a little about your lender and its personality, however, you can improve your chances of securing credit without being turned down several times before getting a yes answer.
In this economy many banks and other types of lenders are simply not making loans. These lenders that fall into this category are not making loans for several reasons:
1) Their institution is in financial trouble, and they are more concerned about surviving than thriving (as of February 2010 there are more than 700 banks on the FDICs troubled institution watch list);
2) They may not be on the verge of closing but may have liquidity problems. Many banks today fall into this category. Instead of growing their loan portfolio, they are focused on forcing cash back into the bank by not renewing lines of credit, calling loans and using other tactics that help the bank regain cash that has been loaned out;
3) The lending institution just doesn’t believe that the climate is right at the current point in time to put more money at risk. They see many uncertainties on the horizon such as significantly increased regulatory pressure, mixed signals from Washington about policies that affect banks and their customers, and a poor economic outlook;
4) They simply can’t think about new loans. They may be in a very hard hit economic area and are too busy trying to work with existing borrowers to mitigate their losses. Or they might be helping their current customers work out their loans so they can survive and ultimately thrive;
5) They may not be a bank that has an appetite for making commercial loans to small businesses. Many lenders love making consumer loans and are good at it. They may say they make commercial loans, but if they don’t have many experienced commercial loan officers working for them it is a good sign they don’t really make many commercial loans.
6) Some strong commercial lenders may simply prefer not to loan in the area of business you are in. They know where their strengths are and avoid industries they don’t know well.
Knowing if your potential lender falls into one of the above categories is critical because regardless of why the lender isn’t currently making new loans, you may be declined and believe there is something fundamentally wrong with your business or loan request.
One way to find out if your lender is in one of these categories is to simply ask your loan officer if their bank fits into one of these categories. Some bankers may not be as forthcoming as others, but you might be surprised by the number of bankers that will give you valuable insight. Another way is to ask other business owners for bank referrals. There is nothing stronger than a good recommendation from a peer when looking for a lender.
There are approximately 8,000 banks in the United States right now and another 8,000 credit unions. Each and every one of them has a unique personality.