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Looking for a Small Business Loan? Look Outside Your Comfort Zone

Small business owners looking for loans must look beyond the large well known sources and contact local establishments

Kathryn Johnson

March 22, 2007

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Whether you have A+ credit or something a little less, finding a funding source that is willing to listen to your story and act accordingly is becoming more and more difficult in today’s harried world of financial competition.

In the past most small business owners would turn to the logical choice for funding, a large bank. But according to a recent report from the California Reinvestment Coalition (CRC), which stated that not one of California’s 15 major business banks did a good job of lending to small businesses, especially those that are minority owned and located in lower income areas. These businesses are the ones most desperate to access capital so they can provide critical services and employment in low income neighborhoods.

“This study highlights the institutional barriers that small and minority-owned businesses continue to face when trying to expand their businesses,” said CRC Executive Director Alan Fisher as reported in company press release. According to the statistics from the study, “Since small businesses are the key to opportunity and hope in lower income communities, these barriers cut the heart out of the American ideal of equal opportunity.” Fisher went on to say, “This is a situation that must be remedied by major financial institutions, investigated by the U.S. Congress and scrutinized by the federal regulators who are responsible for overseeing these lenders.”

Throughout the United States, small business owners, especially the very small and minority-owned, face difficult challenges when dealing with large financial institutions. Most large banks want owners with perfect credit, established business credit and years in business. Small business lending is a niche market that is not being serviced by large banking institutions. Businesses in low income areas that employ local residents must receive help from all lending institutions, not just the small lenders.

With the passing of recent legislation, one government agency, the Small Business Association (SBA) has stepped up to the plate to help the little guys. This new legislation enhances the already successful SBA 7(a) and the 504 loan programs already in place. According to the FDIC Statistics on Banking report in 2006, the SBA 7(a) and 504 loan programs provide almost 40% of all the long-term small business lending. These programs promote low documentation with an 85% guarantee rate for loans up to $250,000. The loans can be made with a guaranteed 36 hour turnaround and supports greater regional SBA office resources, which helps community banks focus more attention on the needs of local families and businesses. With this new program it will expand the number of lenders nationwide that will offer SBA products. This will help the community bankers around the country to better service their small business customers

“The Independent Community Bankers of America (ICBA) supports this small business friendly legislation,” said James P. Ghiglieri, Jr., ICBA chairman and president of Alpha Community Bank in Toluca, Illinois, as reported in their newsletter. “This bill will greatly improve the ability of small businesses to access needed capital through community banks using the SBA loan programs.”

Community banks are a viable alternative for small business owners looking for funding sources. Community banks are the backbone as lending sources to small business owners. They provide needed attention to local families and channel most of the loans to local residents and neighborhoods. To keep these banks growing, officers are available to customers daily because they are involved with the community and most importantly they know their customers personally and are willing to consider family history and character when deciding to make a loan. Decisions are made at the local branches and not at corporate headquarters as with large banks. Large banks handle corporate America and community banks represent their small business communities.

“The main difference is that community banks have a “commitment” to fund SBA loans to small businesses as opposed to larger banks which simply “offer” the product,” said Bill Sorotsky Vice President / BDO of Inland Community Bank. “My bank is a PLP lender, a designation given to banks that are committed to the SBA program. As a business bank (as compared to a retail bank) we are dedicated to making commercial loans and developing a business relationship on an appointment basis.”

Small business owners can count on their local community banks, as proven with their increased growth in 2005. According to the Small Business Administration, during 2005 more new community banks opened for business since 1999. There are nearly 9000 community banks throughout the United States which constitute 95% of all banks. They are considered a critical source of small business lending which is important because small businesses are a very important part of the US economy, accounting for over 50% of non-farm private Gross Domestic Product.

Everyone should support the growth of small businesses. America has 25 million small businesses and employs more than 50% of the private work force. Small businesses are the principal source of new jobs in the U.S. Small business development is the future of the American economy and lenders should be in the forefront of the fight for small business expansion and stability.

“Community banks represent what’s great with America,” said Tom Markel, CEO and Chairman of Credentrust Software which powers iBank.com. “Institutions that take care of small businesses in their own communities are important to us at iBank.com. We represent many community banks on our small business network of lenders. We are dedicated to helping the small business owner find funding and any other resources they may need to succeed.”

About iBank.com
Based in Costa Mesa, Calif., www.iBank.com, is America’s largest online small business Finance network.  The network helps small businesses collect and store all business information inside a secure online VAULT; it helps create a digital loan package, and insurance and investor application packages. Formed in 1999, www.iBank.com utilizes advanced search engine technology, and numerous other online tools for communication and connecting in real time with a nationwide network of loans, insurance and capital sources for a faster, easier, and lower cost experience.

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