During economic slowdowns and recessions, banks (especially the larger ones) first tighten credit for small businesses. They seem to forget that small businesses generate more than half of the gross domestic product (GDP) and create more than half of all new jobs. Banks don’t always understand how a small business works; they just look at numbers on financial reports to make their decisions. So they shy away from what they don’t understand and concentrate on big business, which could actually cost them more in losses.
Some small businesses with great credit status have a difficult time getting financing, and that’s a shame. And when credit is available, most big banks charge increased costs and higher interest rates. So small companies must cut back on hiring, expansion, and growth, which also fuels the slowdown. Sound like a vicious circle? It is, and the people who see it usually aren’t in a position to change it.
Banks are in the business of lending money and collecting interest from creditworthy customers. But they often forget who their real customers are and that they would struggle without them. Some banks make small-business owners feel apprehensive or inferior when they ask for financing, instead of welcoming them with open arms. Banks put up an invisible fence around themselves and try to protect money that’s not even technically theirs. They fail to realize that if no one is borrowing money and paying interest, their business is in danger, too. The banking profession is a noble one, but hey guys—help us out down here!
When you use a bank for your checking account and debit or credit cards, you should keep track of what’s going on daily.
Almost every bank has online banking available, and it’s wise to check your accounts every morning before you start work. This will help you ensure that previous deposits have been recorded and tell you what checks have cleared. It gives you information on how quickly suppliers are receiving and depositing your payments. When you’re in the middle of financial problems, every penny counts every day. Online banking will also let you transfer money between accounts if you have more than one. And you can pay your credit card bills online and wait until the last day before a late charge is added.
Local banks that are not part of large conglomerates provide some hope for small businesses. They understand small business better and often personally know the business owners. Although financial reports are important, small banks can look between the lines and see what’s really going on with a business and its short-term and long-term potential. They can even visit the business premises (which I think every bank should do) and watch the company in action. They can talk to the employees and even some of the target customers to assess future growth. Is the business they are lending to on the cutting edge of ideas and technology or just trying to pay last month’s bills?
Small local banks can and should take this lucrative market away from bigger banks, and some have been doing it. When loan amounts get larger than a small bank can handle, they will partner with other local or regional banks to spread and share any risk. Get to know your local bankers and invite them to a coffee shop where you can talk on neutral ground about your needs now and in the future. A relationship needs time to develop, and you want to be connected if an unexpected crisis hits your business.