Recent Surveys and Studies Suggest Banks Favor Strong Small Businesses

Very recently, November last year to be exact, the Wall Street Journal released an interesting story about banks and their credit preferences. It was discussed in this release that banks and other financial institutions are beginning to increase loans and lines of credit to small businesses. This does not mean, however, that they prefer ‘every’ small business niche and model. On a more general note, banks prefer small businesses that are larger than the usual small business and have enough cash and capital for collateral.

The Federal Bank of New York recently released a survey that clearly defines these small businesses as more apt candidates for credit and financing. Of course, these businesses have demonstrated in the latter half of 2010 positive growth in revenue, a positive and successful five-year track record, and most profoundly, survived the credit crisis by using their profits from 2008. Some small companies who have a record of less than $1 million in revenue are not included, as they do not recover at the same pace as the other “bigger” small companies.

It should be worth mentioning that the well-being of a particular company’s industry is also worth taking into consideration. A lot of credit and financing companies actually favored professionals whose were physicians, accountants, veterinarians, engineers, and law firms due to the fact these business niches are not adversely impacted by discretionary consumer spending, but are rather services that are always in demand.

Another example includes small businesses like Efficient Lighting, Inc. Based out of Southern California, this company produces energy-efficient light bulbs and fixtures. Because of the industry’s green drive, it was awarded with tax incentives and government subsidies. Given the inducement and motivation from the government, the industry expected $4 million in annual revenues that helped facilitate a $500,000 credit line from a bank to the company.

The demand for loans in the small business sector is always increasing, but banks are extremely careful with their lending these days, with more than half of the applications for loans rejected. This clearly points out that you don’t have to have a big business to obtain credit or financing. All you need is a strong and promising company, regardless of size in order to get financial assistance from banks and other financing institutions. The health of the industry should always be taken into consideration as this significantly affects your company’s qualification for loans and credit.