The (Not-So) Tight Credit Market
Joanna Robinson, owner of Lunar Massage in Washington, DC, was working with a banker from BB&T Corporation -- a full-service commercial and retail bank -- to develop a financing package for her business. We called the banker, Ross Macdonald, to ask him what sort of financing is available for small businesses these days in this tight credit market.
We were surprised by what we heard.
Macdonald said credit isn’t tight. By and large, he says, the problem is that the people looking for credit aren’t as creditworthy as they used to be.
Here’s what Macdonald told Out of the Storm News, a digital publication of The Heartland Institute:
OOTS News: Is it impossible for small businesses to get loans?
RM: No, not at all, not at all. I really can’t speak to why the perception is that you can’t get small business credit. We’re puzzled by that every day.
OOTS News: How long have you been doing this?
RM: I’ve been a commercial banker for about 10 years, three years in this market.
OOTS News: You would say that the amount of the loans and the terms of the loans have not substantially changed?
OOTS News: So the amount of money available is the same.
RM: Yeah, for us. I can’t speak for other banks. They’re probably not the same across the board, though.
OOTS News: Are you seeing any change in either the numbers of people looking for financing for small businesses or the types of businesses that they’re trying to finance?
RM: Not really. I guess you could say that a good reason that the perception that lending is tight could be that the economy is generally tight. So folks who come in to apply for loans may not be as qualified as they once were, in the current market.
OOTS News: That’s interesting. So it’s the creditworthiness of the people coming in?
RM: Right. Our standards haven’t really changed. It’s just, you know, people come in, “Well, the economy hit me this way,” and certain things have changed about it. But it really hasn’t impacted volume or anything like that. It’s all basically the same for us right now.
OOTS News: And there’s no new standards of creditworthiness, it’s just that people have suffered financial hits so they may not be as creditworthy as they used to be?
RM: I have personally encountered a lot of people who are maybe hit by the economy and looking to make [a] fresh [start] in another industry or something like that. They come to the bank with the idea that they’re going to borrow to start their business, which isn’t really the purpose of a loan.
A really good tip is to have a specific purpose for your loan: I need to build out a space for a restaurant, I need to buy a pizza oven, I need to buy a truck. Something tangible is good. If you just say, “I need to start a business, and I have a big list and I need to buy garbage bags”—I mean, that was never the way that businesses were lent money.
But I think right now with a lot of people being pushed into the small-business market due to the economy, and, you know, unemployment and what have you, they kind of are looking at banks as investors. Maybe they’re bringing in more of an investor-focused presentation to a bank, and that’s great. But bring it to an investor, and then whatever specific purposes that the investor doesn’t cover, that’s probably the realm of a bank and a loan.
OOTS NEWS: What kind of business do you see the most of?
RM: I’m a small-business lender, so I’m primarily dealing with what used to be called “micro businesses.” So it would be businesses with one million in gross receipts or less in a year.
Nonprofits, doctor’s offices, dentists—you know, lots of different things. It’s a lot of professionals, lawyers, people who want to do something on the side. “I really like wine. I want to open a wine bar but I work at XYZ law firm.” So there’s a lot of that. . . . a lot of professionals who are starting side projects with things they really like to do.
OOTS NEWS: I’m a lawyer who’s gotten out of law. Do you see a lot of lawyers trying to get out of law?
RM: By and large they usually have the idea that eventually this will overtake [their] income from the law practice and [they] can get out.
OOTS NEWS: And does that actually happen?
RM: Not really, but I don’t know, not within three years, anyway. I mean, they’re not crashing and burning or anything.
Of course, if they’re qualified and they’ve been approved for financing, they generally have a good plan, a good head on their shoulders. It’s fun, if nothing else.
Arin Greenwood (email@example.com) is editor of Out of the Storm News, a digital publication of The Heartland Institute, where an earlier version of this article appeared.