Lenders and Small Business Owners Differ on Credit Scene
Jun 12th, 2013 @ 9:37 PM by Amber Nelson
Lenders say there is not enough loan demand yet small business owners say they can’t find funding, according to comments during the third annual Capital Access Innovation Summit in Washington.
The summit, hosted by the National Economic Council, invited government officials, investors and entrepreneurs to brainstorm about ways to open the flow of capital to small businesses. Apparently, the problem lies in a gap of communication.
“Small businesses feel they are absolutely being denied the credit and capital they need, and large banks tell you they are looking for every small business they can find,” commented NEC director Gene Sperling during the summit.
“I think it’s a bit of a myth that banks aren’t lending,” Beth Mooney, chairman of KeyBank in Cleveland, Ohio said during the event as quoted in a Washington Post article. “Most companies who want credit and are creditworthy are having their capital needs met, to the extent it’s through a bank loan.”
Maybe the discrepancy is in the word ‘creditworthy.’ Said Jeanne Hulit, associate administrator for capital access at the U.S. Small Business Administration, “the larger, more-established businesses seeking larger loans are definitely getting access to credit,” she said. “It is the smaller start-up businesses, the ones with under $1 million dollars in revenue, that are still significantly challenged.”
So why the mismatch in funding? The businesses seeking for smaller loans tend to be small companies or start-ups without excellent credit histories or major collateral to offer. Lenders are still cautious when it comes to risk and these fledgling firms still represent potential losses.
So yes, banks are looking to loan money, but only for certain ‘creditworthy’ types. In order to solve the problem, summit members suggested reducing fees on small business loans and even eliminating them altogether on loans of $150,000 or less. Other members invited the government to provide more mentoring and training to entrepreneurs to increase their likelihood of loan approval.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.