Bank Loans and Lines of Credit: Harder to Come By, But Not Out of Reach
Bank loans and lines of credit have always been one of the more difficult sources of funding for small businesses to obtain, and that's especially true for early-stage businesses. Things have been even worse than usual in recent years. The 22 biggest banks receiving Troubled Asset Relief Program (TARP) funds collectively reported a decline in their small business loan balance last year. The Ohio district office of the U.S. Small Business Administration (SBA) guaranteed just 1,250 loans in 2009, down from 2,300 in 2007, reports Thomas Mueller, the Ohio district director. However, the federal government has been taking steps to loosen up bank lending to small businesses recently.
"Banks are more interested in the past, how your company has performed historically," notes Lynn Gellermann, founding partner and president of Adena Ventures (www.AdenaVentures.com), which invests in early and growth-stage companies in Appalachia, and executive director of TechGROWTH Ohio (www.techgrowthohio.com), which connects early-stage, technologically innovative companies with valuable tools for growth and sources of capital. "Venture capital and angel firms are more interested in the future, your company's prospects for growth." Nonetheless, Gellermann adds, small businesses should not discount banks as a source of funding, even in the early stages. "They need to explore all their options. Bank financing can go hand-in-hand with bootstrapping, angel investments, credit cards, home equity, venture capital and government grants and loans," he advises. "Making use of all resources available is the sign of a true entrepreneur."
One of the best options for bank financing available to small businesses is the SBA's 7(A) Loan Program, which the government has been taking steps to revitalize. During a period of 2009 when the federal government increased the percentage of 7(A) loans it would guarantee and eliminated application fees, the Ohio district saw an increase in the number of loans it processed from 70 in March to 170 in September. "With and without the higher guarantees in place, we are averaging about 135 loans a month in 2010," Mueller says. "Continued higher guarantees and the suspension of fees through the end of the year would be a big help, and we strongly support that."
The SBA offers several other loan programs, including micro-loans, export assistance trade financing and international trade loans. More information on those programs and other assistance available from the Ohio SBA office can be found at www.sba.gov/oh. The agency's Central & Southern Ohio Small Business Resource publication contains much valuable information on those programs and can be downloaded as a PDF file at the site.
