By many measures, the atmosphere for small business lending is strong. The volume of borrowers are searching for capital and reinvesting in their company continues to grow, and they are finding success when applying for loans.
Small business lending climbed to an all-time high in May, according to the latest figures from PayNet, the leading provider of small business credit data and analysis. PayNet tracks the volume of small business loans issued over the past 30 days based on recent data from the largest commercial and industrial lenders in its U.S. database.
Meanwhile, lending institutions are approving business financing requests at rates we have not seen before. For instance, big banks (assets of $10 billion+) approved 26.1 percent of the loan applications they received in June 2018, according to the Biz2Credit Small Business Lending Index™. The June approval percentage rose two-tenths of a percent from May’s figure of 25.9 percent. Additionally, community and regional banks granted 49.6% of the funding requests they received in June, up two-tenths from May. It was the highest figure for small banks since April 2015.
The continued strength of the economy and optimism among small business owners are important factors in these results. Entrepreneurs are confident and are investing in the growth of their companies. The markets are performing well and small business optimism is extremely high, according to the monthly NFIB survey.
“Times are unusually good for Main Street businesses and their lenders now,” said William Phelan, president of PayNet, Inc., in a statement. “The combination of record-high credit demand and low credit risk for main street businesses signals that higher profitability is in store for commercial lenders — especially those with technology systems currently in place that can minimize costs.”
SBA 7(a) loans, which provide government guarantees that mitigate risk for the lenders, have reached an all-time high, according the SBA’s latest figures. About one-third of SBA 7(a) loans are going to minority business owners in 2018. Just five years ago, the figure was 27 percent. This indicates growth in entrepreneurship among Hispanic, Asian, and African American populations. SBA loans are a good source of capital for startups and companies with little credit history or less than stellar credit ratings.
Before applying for funding, a small business owner should prepare the following information in advance:
Business Plan. Write a plan that succinctly describes the company, the background of the individuals involved, competitive landscape, owner investment (“skin in the game”), and realistic financial projections. Explain how the loan will be used to help the company achieve its goals.
Loan Application Form. Be sure to fill out all the questions that are asked. Incomplete loan applications are a common cause of rejections.
Personal Financial Statements. Lenders typically require financial statements for individuals who have a 20 percent or more financial stake in the company. Include two to three years’ worth of tax returns.
Business Financial Statements. In order to obtain a loan, borrowers must be ready to provide financial information, including balance sheets, income statements, and business tax returns.
Collateral. Put together a description of the collateral that will be pledged to back the loan.
Other documents that may be required by lenders include a lease, business purchase or franchise agreement, articles of incorporation, operating agreements, and relevant permits and licenses to operate the business.