Monday, February 04, 2008

Business Credit Getting Tighter

No big suprise here - the Federal Reserve says banks are getting more stingy when it comes to providing new business loans.

The latest Federal Reserve survey of senior bank-loan officers released today shows that one-third of domestic institutions reported having tightened their lending standards on business loans to small as well as to large and middle-market firms over the past three months.

While few banks are eager to admit publicly that they are scaling back, almost every banker I speak with tells me of tightening credit standards and deals not getting approved by investment committee as a fear mentality starts to take hold.

What's a small business to do that needs a business loan? Before you go to a lender, ask yourself what three sources of repayment are you offering in support of your business loan?
  • Are you able to demonstrate that your business will generate sufficient cash flow to pay back the loan?
  • What business collateral are your offering to secure the loan? This should include accounts receivable, inventory, equipment and real estate.
  • What is the personal credit strength of the business owner(s)?

If you can answer those three questions satisfactorily, your lender should be willing to entertain your request for a loan.

If you can't answer those questions, keep my phone number handy because you'll probably be a victim of the credit crunch.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : Federal Reserve , small business , business loans , credit crunch

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