Small business owners need financing to expand and grow their businesses, but small business loans have never been easy to get—and since the Great Recession struck, funds have gotten even more elusive. The average bank uses just 7.65 percent of its deposits to make small business loans, according to small-business-loan broker MultiFunding.com. That’s why MultiFunding decided to create a new tool that helps small businesses find small-business-friendly banks near them.
The new tool, Banking Grades, allows business owners to search for small business friendly banks by name, address or location. Users can also view a list of the 2,500 or so banks that received an “A” grade.
MultiFunding CEO Ami Kassar explains that the ranking was created by taking all FDIC regulated banks nationwide and using FDIC data to rate the banks based on the ratio of business loans of $1 million or less to total domestic deposits. Here’s what the rankings mean:
A (Excellent): Uses at least 25 percent of its deposits to make small-business loans
B (Good): Uses 10-25 percent of its deposits to make small-business loans
C (Average): Uses 6-10 percent of its deposits to make small-business loans
D (Poor): Uses 3-6 percent of its deposits to make small-business loans
F (Failing): Uses less than 3 percent of its deposits to make small-business loans
Kassar says the banks with the highest grades tend to be smaller, community banks that are focused on helping small businesses. That doesn’t mean these banks are a slam-dunk, however. Kassar says access to credit is loosening up, but only very slightly.
How can you improve your chances of getting a loan? Kassar’s advice includes:
- Be well-organized. Have all your ducks in a row such as financial reports and statements.
- Have collateral to pledge against the loan. Unsecured loans are more difficult to obtain.
- Have good cash flow. The bank wants to feel confident the loan will be repaid.
- Find the right bank. “Find a bank or lender where the loan officer and the credit officer collaborate and work together to find a way to make it happen [for you],” he says.
While Kassar feels credit unions are also a good source for small business loans, he notes that they file different reports than banks do; as a result, including them in Banking Grades would have been an unfair comparison.
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