By: Julie Story
Small business' access to credit continues to be a much-discussed topic among financial institutions, economists, government officials and regulators. Several studies have shown that community banks and credit unions are leading the charge when it comes to extending credit to small companies, while large banks are still taking a more cautious approach toward lending. Although economic concerns are a significant factor in many banks' reticence to extend loans, a recent article also noted that many small business owners trying to obtain financing for the first time were largely ill-informed of the proper actions to take.
In general, borrowers are responsible for learning bank and credit union collateral requirements, credit score mandates and the business statements they must bring. For a first-time applicant, however, knowing the details of the loan process can be difficult, and many are denied financing when they show up unprepared. For this reason, banks and credit unions may build stronger relationships with business customers and help them obtain the financing they need by educating these customers on the proper lending processes beforehand. Many local institutions work with mortgage applicants and those taking out personal loans, and a number of banks and credit unions have made financial education programs a core part of their offerings. Adopting this same attitude toward business customers may also be beneficial.
Helping business owners obtain loans
As an example, banks and credit unions may consider holding meetings with business customers prior to the submission of their loan application. This can give representatives time to go over the type of information they are looking for during the application process, general credit score requirements, collateral options and necessary paperwork. This may also give customers time to ask questions about financing that they may have not been able to ask otherwise. Further, taking the time to discuss the loan process prior to accepting an application can make it go more smoothly and quicker, as newly-informed business customers may mitigate common mistakes that delay final decisions.
Lastly, financial institutions that provide guidance and assistance to new and existing business customers demonstrate their desire to see them succeed. Customers who feel valued by their bank are less likely to switch institutions or claim dissatisfaction. Therefore, it's in financial institutions' best interest to play a more active role in the lending process, rather than simply waiting to obtain a valued customer's application.