We know what the economic downturn has done to our 401K’s. But how is it affecting the decisions of our commercial lenders/banks in Southwest Iowa?
To find out I sent out a quick survey to many of our commercial lenders in Council Bluffs and other surrounding cities within our 7 county region. Here is what they said.
Q: Is it a good time to start a business or to invest in growth for an existing business? A: Yes or Depends was the common answer. The respondents collectively felt that with planning and research a new business or business growth strategy could survive in this economy. In the opinions of the respondents, it would largely depend on the type of business and how viable the idea is during these times
Q: Is Commercial Lending at your institution harder to obtain now versus last year at this time: A: Yes. Obtaining a loan is becoming more difficult. Gone are the days of bankers lending on past history, good relationships, or collateral alone. The banker is looking for a complete package: Solid research, solid history, A well written and thought out business plan, good credit, collateral, and cash to invest.
Q: What is your preferred credit score for individuals? A: 700+. If you are below 700 do not lose hope. By paying off bills and using due diligence in future finance decisions, credit scores can be raised. The Federal Trade Commission has developed a book called “Building a Better Credit Report”. NOTE: a few bankers responded that credit scores were not used in their institutions. What this usually means is that they don’t look at the score, but do look at the historical report.
Q: What does your institution require at a minimum for a down payment on the requested business loan. A: 25% or higher. This means that if you need $100,000 to either start or grow your business, the lending institution will ask for, at a minimum, $25,000 from you. Few businesses are funded at 100% by any lending organization or program. Start planning now for ways to save or raise funds to invest. Funds can be borrowed from Friends or Family. Virgin Money.com offers an alternative way to help manage borrowed funds between relatives and friends.
Q: The bankers were asked to rank the following: Down Payment, Collateral, Personal Character/Ability, Business Plan/Feasibility, and Credit Score . A: The ranking above is the order that the respondents put them in starting with most important. However, most of the respondents added that all of the above were very important in their decision process.
Q: The bankers were asked to rank the following components of a business plan in order of importance: Operations and Management Plan, Historical Financials OR Industry Benchmarks, Market Research/Market Feasibility, Marketing Plan, 3 year monthly projections, and the Business Description. A: The ranking above is the order that the respondents put them in starting with most important. However, most of the respondents added that all of the above were very important in their decision process.
Q: What changes in commercial lending do you foresee in the next 12 months? A: Most responded that they expected things to get even tighter.
What does all of this mean for the enterprising small business. PLAN, PLAN PLAN! Equity investment expectations will probably continue to rise and bankers will be looking at the COMPLETE package to ensure success. Banks do want your business. They do want to see small businesses thrive! For help in preparing to go to your banker, remember that the Iowa Western Entreprenerial Center and SBDC is a free resource and will help you every step of the way.