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Thoughts on Small Business Lending

First, I don’t believe the government should be the ones telling banks what to lend or not to lend.  The banker is the one that needs to decide if someone is a good credit risk or not based on what level of risk they want to or can take on at the time they are going to lend.   

First, I don’t believe the government should be the ones telling
banks what to lend or not to lend.  The banker is the one that needs to
decide if someone is a good credit risk or not based on what level of risk they
want to or can take on at the time they are going to lend. 

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The challenge however is what people consider small
business.  Politicians are always so tricky with how they use their
words.  Small business is so broad it could mean a 1 person operation
working from home up to a 499 employee company with six locations in 3 states
generating $50,000,000 in revenue. 

 

The small business owners who really need access to capital right
now are the ones that are the highest risk and the least likely to get
financing.  These are the 1-5 employee companies under five years
old.  They see the opportunity to grow and add jobs by taking market share
from other companies that are struggling to keep the doors open because they
grew too fast or had too much overhead.   These small business owners
can really drive the local economies and initiate job growth again.  The
challenge is they aren’t qualified businesses or borrowers 80% of the time.
  They either have low FICO scores or their financials don’t justify
the loan amount they want or need.  Most of these companies are seeking
$25,000 to $250,000.

 

When I talk to the banks about programs for these companies they
send you to their credit card division where the approval process is strictly
driven by FICO score and years in business (which these clients lack.) 
The government and news talk about small business lending and getting it going
again, but what they refer to are the companies with 100-500 employees and are
looking for $500,000 – $5m in loans.  I’m sure these companies can help create
jobs also, but the reality is there are A LOT more 1-5 employee companies than
100-500 companies. 

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The SBA community express loans do help the smaller 1-5 person
operation but most small entrepreneurs aren’t aware of these loans and banks
aren’t interested in spending a lot of time writing them.  It is still a
lot of paperwork with little money for the bank, so they prefer to write larger
loans and lower their risk with bigger companies.  I don’t blame them for
that.  A great resource for the 1-5 person business is friends, family and
smaller angel investors.  They can even look at peer to peer lending sites
such as www.prosper.com

 

So in my opinion the politicians are just a lot of talk, posturing
to look good in the media so people think they are “small business”
friendly.  It’s actually an oxymoron to say politician and “small business
friendly” in the same sentence.  Government won’t create the free market
jobs, they just need to get out of the way and let the small business owners do
it themselves.

 

 

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David Gass

Founder, Business Credit Services, Inc. &

Earn.com Expert Advisor

 

About the author

David Gass is a serial entrepreneur who has started businesses with $200 and grew them to multi-millions. His companies have been listed on the Inc.

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