By Suzanne De Lucia CBI, Fellow Of The IBBA
You never really believe it until it happens to you, but I have just learned firsthand that small business lending in the United States is in big trouble.
My partner and I own a small food manufacturing and distribution business. Since we acquired the business in March 2009, we have added seven jobs to our work force and have managed to grow sales by over 20% in a down economy.
We put together a business plan that clearly and compellingly spells out how an infusion of capital would help us to acquire equipment, create additional jobs and achieve higher levels of profitability. The head of a regional Small Business Development Center (an SBA program) praised the plan as one of the best he had ever seen. When asked if we would get the loan, his response was “If you don’t, no one will.”
Our local banker awarded our plan similar praise, but he rejected us for the loan based upon our company’s tight cash flow. The fact that we have reinvested all of our profits into our growth was ignored. He also apparently ignored the parts of the plan that showed savings in labor, material purchases and delivery costs. Our prior experience in business ownership and the food industry were equally valueless.
In spite of our company’s growth and the increased profits shown by the business plan, this rejection was exactly what I expected from the bank. However, based upon our personal credit, collateral and alternate income sources, I still thought we would get loan approval.
My partner and I both have superb credit, with scores between 750 and 800. Our personal assets, including home equity and investment real estate, are five times the amount we were trying to borrow. We also have personal cash reserves of over four times the requested loan amount. As the cherry on the sundae, my partner’s spouse earns substantially more than a six-figure income, which would provide discretionary income more than sufficient to make our loan payments. I also receive additional income from another business I own. Given our personal collateral and alternate income sources, the risk to the bank was virtually zero, yet no loan was made.
Small businesses plant the seeds of our economy. Without fertile soil, and sufficient water and sun, plants cannot grow and there is no harvest. The proverbial “fat cats,” who are hoarding the resources of soil, water and sun, will be the death of not only small business, but the entire economy. Until the lending industry achieves some sanity, there is little hope that our economy will thrive, not to mention survive. Things cannot and will not improve until the banks and the government give small businesses like ours the chance to grow and contribute to the economy.