Banks are increasing lends to small companies. The strongest of firms are deriving most of the benefit as their loans and lines of credit are ever expanding. It is found that in the third quarter that small business banks have started to increase loan grants to small businesses. Wells Fargo & Co. lent $3.9 billion, Bank of America Corp lent $5.7 billion and J.P. Morgan Chase Co. lent $2.7 billion. But the major chunk of the money is going to bigger of small businesses.
It is found that companies with less than $1 million annual revenue are not found recovering at the same pace. Kathie Sowa of Bank of America, says “The larger the business, the better they are doing.”
Regions Financial Inc is known to lend to professionals like physicians, veterinarians, accounting law and engineering firms. This is the reason why companies like Efficient Lighting Corp., a Buena Park, Calif have been able to position themselves for securing credit.
Banks have become very choosy about borrowers. For example, they defer loans grants to restaurants. Shane Ramsey, president of seven Schlotzsky’s restaurants in Oklahoma is denied loan grants in-spite of the fact that each of his restaurants generates $1.2 million. When banks are being questioned, they reply “We’re not lending to the restaurant industry.” Ramsey so stopped approaching banks and found loans from private investors.
The Federal Reserve data reveals strong demands as 59% of business owners were looking for financing in the first half of the year. Banks are being cautious when it comes to lending as they say it is difficult to find credit worthy borrowers. According to Marc Bernstein, head of small-business division at Wells Fargo, the biggest problem in extending credit is that owners of businesses are still paying off debt that they accrued prior recession.
“We are really stretching as far as we can prudently stretch to approve as many as we can. We have an obligation to make sure they are repaid,” says Bernstein.
Ms. Sowa at Bank of America, however, says that they are not ignoring small businesses but instead are recruiting them actively. This is not specifically meant for extending credit but to process the businesses deposits and extend help in managing cash flow. So, the banking relation becomes well established by the time the businesses become ready for loans or line of credit.
This article was submitted by Rohit Arora, co-founder of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to