December 1, 2010

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Article

Get in the Game

Banks are Ready and Willing to Lend to Small Businesses

Spencer Sutherland

December 1, 2010

The “R” word. Two-and-a-half years ago, it was still being spoken in whispers, as though if it was tiptoed around delicately enough, the recession would somehow pass us by.

Though economists were slow to confirm the official beginning of what would later be coined the Great Recession, they were much less timid in recently declaring its end. Utah’s lenders are hoping that with the economy on the mend, the small businesses that have struggled to keep their doors open during these tough times will find their way back to the funding table.

“The businesses that have survived have done it by cutting expenses in order to sustain themselves through the recession,” says Lori Chillingworth, executive vice president of business banking at Zions Bank. “In the last six months, they’ve been wary about what to do next—they don’t want to hire, expand or buy new equipment because they don’t know if there’s going to be a [recession] double dip.”

While small businesses may feel trepidation when deciding to take on additional debt, there are some real benefits of applying for a loan during shaky economic times. First and foremost, there is plenty of money to borrow.

“The capital and liquidity at the banks was dried up a bit a few years back,” Chillingworth says of the credit crunch that accompanied the recession. “Since then, the banks have recapitalized. We have a lot of capital and a lot of liquidity. The supply of money is there.”

In the case of financial firms like Chase, more small business dollars are available now than ever before. “We recognized in the latter part of 2009 that it was a tough economy, yet we were fortunate enough to have the financial strength to get through it,” says Brian Teran, senior vice president of business banking at Chase.

As a result, the company upped its small business loan pledge from $6 billion in 2009 to $10 billion in 2010. In order to get those additional funds into the hands of borrowers, Chase had to get a bit creative. The company introduced several new incentives, including Loan for Hire, a program that rewards business owners who add new employees. For each new employee hired (up to three employees), the small business receives a half-point interest rate discount.

“[The program] not only helps small businesses, but increases employment here in Utah,” Teran says. “The lower interest rate has been a real advantage to [borrowers].” Chase is also paying more attention to applications that don’t make the first cut. “We wanted to ensure that we were doing everything we could help small businesses,” Teran says of the creation the Second Look program.

The premise is simple—when a loan comes in, it is underwritten and a decision is made. If the loan is denied, Chase will revisit the application, or give it a “second look,” to determine if the loan can be approved at a different amount or other alternatives can be pursued. Teran says that the program has been an incredible success nationwide, with Chase awarding nearly $200 million dollars in second-look loans since November 2009.

Incentives are also coming from the government. After sitting in the senate for months, a bill was recently extended to allow the Small Business Administration (SBA) to waive borrower fees and offer a higher guaranteed percentage on loans. Chillingworth says that the most beneficial part of the bill, for both banks and borrowers, is the increase in the SBA maximum loan amount.

“That gives us the opportunity to help more businesses,” she says. “I’m really looking forward to that and hoping it will stimulate more lending opportunities.”

Lenders are hoping that these measures will help make a difference in bringing Utah companies off of the sidelines and back into to the game. Chillingworth is optimistic that the change is right around the corner. “I’m starting to see a trend that customers and prospects are starting to call about loans, wanting to know if we have the money to lend, and making inquiries about expanding and hiring new employees,” she says. “I think we are starting to see more than just green shoots poking up out of the ground. There is good momentum. The financial statements we are seeing seem to be stabilizing or getting stronger. I’m very optimistic that things are starting to turn around and we’re going to get the economy moving again.”

A Plan for Success
Utah lenders say that when it comes to small business loans, there is plenty of money available. But to get your hands on it, you’ll need to navigate the application process. Though every financial institution may have slightly different requirements, the key to a successful application is universal—a solid business plan.

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