If you have been listening to the media lately, you are probably under the assumption that banks are not lending to businesses. In fact, there has been a lot of talk about businesses not being able to secure financing. However, a recent survey of small business owners by the NFIB Research Foundation has found differently. The survey indicates that the leading economic problem for 51% of small businesses is slow or declining sales, with only 8% citing access to credit as their primary economic issue. This is supported by the fact that overall loan demand remains soft. Despite the media hype, the truth is that banks are indeed lending, and are looking for solid, credit-worthy businesses in which to invest.

Where does this misconception originate? It is true that banks are under pressure because of the current economic climate. Recent regulatory changes have dictated that banks maintain larger reserves and have placed limitations on the type and size of loans that can comprise a bank’s portfolio. As a potential commercial borrower, it is helpful to understand these regulations so you can position your project and loan application most advantageously.

Banking regulations stipulate maximum thresholds on certain categories of commercial loans. For example, non-owner occupied real estate development is considered speculative and many banks are not positioned to offer lending in this area even to the most credit worthy customers. As a result, it may take a larger investment of time and resources to identify a banking partner that has room in its portfolio for this type of loan. Conversely, owner-occupied real estate development is not subject to the same lending restrictions and is currently very attractive to banks, provided that the business has sound financials and a well-developed forward looking business plan. For a bank to consider a building as "owner-occupied" more than 50% of the buildings available space must be used by the building owner. Understanding the regulatory limitations placed on your banking partner can help you plan your project accordingly.  Below are some guidelines to further help you navigate the commercial lending process.

1. Think Local

Your bank is your partner and good bankers can truly help you meet your business objectives. Remember, banks are not your adversary but are truly important drivers in your business. All banks need to make good loans in order to earn revenue.

It is important to establish a long-term relationship with a commercial bank that can meet your financing needs as your business grows. Consider community banks as they know and understand the local business market and are well equipped to provide relevant and localized insight. In addition, a local bank is better able to take the time to get to know you and learn your business, enabling them to be more informed and more likely to invest strategically in your future growth. This is an important relationship; take the time to find the right partner.

2. Do Your Homework

Take the time to investigate all of your options and be prepared to answer hard questions. What are your risks? How have you mitigated them? It may be that your business is growing and you want to build a new location. Before talking to your banker make sure and explore all of your options? Would renovating or renting be less costly and less disruptive for your business? Talk with knowledgeable bankers, builders, and real estate professionals in your community. They have a wealth of insight into local market conditions and if they are truly customer-focused they will be willing to help.

3. Prepare Yourself

It is important to have the correct information prepared when meeting with your commercial banker. In addition to your business financials, you will need a well-developed business plan and projections as to how your project will cash flow in the future. Remember that your banking partner is interested in your track record, but they also want to see your vision for the future. Be prepared to provide personal financial statements and personal guarantees. If you aren’t willing to personally guarantee your performance, how can you expect your bank to take the risk? Your banking partner can provide you with information about the specific documents you will need. 

4. Be Insured

Before meeting with any financial banking institution, confirm that they are FDIC insured. In today’s banking industry this is a standard, but it is important that you do not merely make the assumption this is true for every institution. Also, ask questions about the performance of the bank you are working with. How solvent are they? Can they make the types of loans you might need considering the structure of their loan portfolio? What are their lending limits? It might surprise you, but some smaller local banks have lending limits that are under $2m. These limits are defined as the banks total combined exposure to a given individual.

5. Plan Ahead

Lead times for obtaining a commercial loan can vary, depending upon the type of loan. Typically, it takes 30-45 days from the loan initiation request to receipt of the commitment letter from the bank. For real estate oriented transactions it can take another 60-90 days to close the loan. It is important to plan accordingly.

As you explore your commercial lending options, do not be dissuaded by the doom and gloom propagated by the media. Remember that Virginia remains economically solid, and is not saddled with high foreclosure and unemployment rates like many other states. In fact, our state is still ranked as America's Top State for Business by CNBC and the Best State for Business by Forbes.com. By working proactively with the right commercial banking partner, you can invest in and grow your business, even in today’s challenging economic climate.