What the Banks are Looking for Today

In this economic downturn, one of the biggest problems that we face is lack of liquidity or the availability of cash to deal with survival, growth and other operating expense issues of running a business. Deserved or not, lately banks have gotten a bad reputation. Some banks, because of their poor lending habits in the past, are simply not able to lend. However, there are many banks that are still lending.

In this new environment, banks that are able to lend have increased the loan requirements to such an extent that many businesses are unable to borrow money like they have in the past. This is generally due to the banking regulators requiring more stringent lending requirements. This manifests itself in higher credit score requirements, different collateralization requirements and higher down payments in order to get a loan, resulting in fewer loans.

The banks, these days, are cash flow lenders. This means that one of the biggest criteria in their decision is if they think the business can pay back the loan with ongoing cash generated by the business. Additionally, they are going to check the business owner's and business' credit history, they are going to want collateralization in case payments cannot be made. They are also going to want an equity injection (down payment). Any problems with the above and the bank cannot and will not loan a business money.

Banks are not investors. Banks are in the business to buy and sell money profitably. They have a responsibility to preserve the capital of the depositors and do not want to take excessive risks with potentially bad loans. It is in their interest to say no to loans that have a chance of going bad.

What does a business owner do if these increased lending requirements have made it difficult to find money? There are other alternatives. These alternatives require a change in attitude and thinking. In this changing economy if you are to survive, you have to 'think outside of the box'.

For a free, confidential analysis of your situation and a discussion of your alternatives, contact Rand Riedrich at the University of Georgia's Northwest Area Small Business Development Center at rriedrich@georgiasbdc.org or (706-272-2700)