“At 10 percent risk it’s easier for a bank to step up and make that loan, perhaps to something they weren’t willing to about six months to a year ago,”said Tom Burke, head of Wells Fargo's SBA Lending Program.“It makes lenders take more risk.”
During the past few months, small business lenders have offered more loans than in all of 2008. According to the SBA, it has supported $6.5 billion in small business lending with the approval of $4.8 billion in loans since February 17, 2009.
And some banks, even those not in the SBA program, are making loans because they do see some signs of an economic recovery.
“Loans are available, as long as you qualify, about 8,000 commercial banks have money to lend," says William Dunkelberg, chief economist for the National Federation of Independent Business.
But a reduced tolerance for risk has led some lenders to drastically tighten their small business lending policies, disqualifying past candidates.
Aristotle Hir Souliotis, the owner of a Subway and a Dunkin Donuts outlet, says he was not able to receive loans from commercial banks he used before, despite the fact that sales at his Dunkin Donuts franchise were up 15 percent from the previous year.
But a national lender, Direct Capital Corporation, a firm that works with franchises, was able to lend him the money. "About two years when the economy was good," says Souliotis. "We could walk into a local bank and we were in and out within a week getting a deal, and now those same banks are not willing to work with franchises anymore."
While some banks have drastically raised their loan eligibility requirements, other banks have mostly left their loan policies in tact, despite the risk factor.
“We have been pretty consistent, we shouldn’t be over reacting with our credit policy,” said Burke. “We tightened our requirements a little bit over restaurants, otherwise we try to stay pretty consistent.”
But the tougher lending restrictions at some banks have forced small business owners to look elsewhere for funds, like credit unions.
According to Mike Schenck, the senior economist for the Credit Union National Association, the demand for credit union small business loans has increased six percent in comparison to commercial banks.
Harley Nobli, the owner of Comfort Wizards, a North Carolina heating and air conditioning company needed a loan. Even though he didn’t meet the eligibility criteria for some banks, Nobli was able to obtain a zero percent SBA loan through a credit union.
“The credit union was able to loan the money when the community and commercial banks were not,” said Nobli. "This loan is going to save us $22,000 in interest a year,” he said.
Other lenders are also helping businesses facing financial hardships. According to Greg Aguirre, the CEO of a financial company, that seeks and acquires business capital for small businesses in Florida, U.S. Capital Source, more loans are being provided in comparison to a year ago. The number of loans being approved increased by 566 percent.
“So far, after January of 2009 we have acquired and approved approximately over 200 loans, valued at over $20 million,” he said.
In addition, local government agencies are also seeking to help small business owners with programs like New York City’s Capital Access Loan program.
“We re-organized the program in a way that would make it more useful to micro businesses having problems in this market. We increased the kinds of businesses that would be eligible,” said David Lombino, a spokesman for the New York Economic Development Corporation.
The enhancement and expansion of this loan program is helping businesses qualify for a loan. So far, it has provided more than 50 loans to small businesses within the city's five boroughs.
“Since March, more than $3 million in loans have been executed for small and micro businesses,” said Lombino. “We gave a barbershop in Brooklyn $21,000, $25,000 to a carpet store for working capital, $100,000 for business expansion to an architect and $250,000 to a specialty trade contractor.”
And for all the reports of financial difficulty, a recent survey shows that 30 percent of small business owners reported that all of their financing needs were met. Just a small percentage listed financing as their biggest problem, according to the July National Federation of Independent Business monthly survey.
“Only six percent of business owners say financing is their number one business problem in comparison to the last big recession in 1982, when 37 percent said that was their top problem,” said NFIB's Dunkelberg.
And even though the lending standards tightened and some institutions have avoided risk, there is money out there according to industry analysts.
“Billions of dollars have been put in the hands of small business owners to keep their doors open,” said Swain. “These are dollars that are driving to save jobs and helping the economic recovery.”