Loan stars: with new technology at their fingertips, banks are opening their doors to small business

Entrepreneur, Nov, 1997 by David R. Evanson

Out in the trenches, this means more loans are going to more small businesses in a more efficient fashion. In early 1996, when Bonnie Schwartz revived her dream to build her own focus group facility, it was a whole different story when she applied for a loan. Barnett Bank of Tampa, which had a branch near Schwartz's office and used a scoring model for credit analysis, approved her $495,000 loan application in just four days.

Schwartz was pleased that Barnett's credit scoring model looked at her loan proposition objectively. "What I liked about this new approach was that it didn't matter if you were a man or woman - [the bank] looked at your history," she says.

Wantland says midsized and larger companies are relying less and less on bank loans, prompting even greater interest in the small-business market. But while many banks profess an interest in small-business lending, Wantland offers these tips on how to recognize the ones that are truly interested in making loans to businesses like yours.

* Consider larger banks. Wantland says small banks play a vital role in fulfilling highly customized needs for small businesses. But for small businesses that need a quick loan without the bells and whistle, it's the larger banks, with $10 billion or more in assets, that are capable of delivering the goods.

* Critically evaluate product lines. Wantland, who investigates competitors' offerings all the time, says you should ask bankers what products they have geared specifically for small businesses. "If they have just one deposit or checking product, just one option on credit, or they give you a price list that is 5 years old, that's a sign the institution is probably not too serious about the small-business market - no matter what their ads say," warns Wantland.

* Find out bow long it takes to get a loan approved and how it gets approved. If the answer is two hours, you're probably looking at a bank that's serious about small business. If the answer is two weeks, you might want to keep looking.

* Remember that ease varies inversely with size. For many loans above $150,000, automated credit scoring notwithstanding, most banks want to take a closer look at your company, and that can slow down the process. If you want a really fast loan, keep your request under $100,000.

* PACKAGE DEAL

The role of technology in shaping the small-business lending market has a flipside, too, which makes the prospects even brighter for small-business lending. That is, as credit analysis, approval and monitoring become more automated, small-business loan portfolios at banks will become more homogeneous. This phenomenon is a plus because it means banks will then be able to package and sell their small-business loans in the same way auto loans and mortgages have been sold for years. "When banks can make small-business loans, sell the loans and get their funds back to make even more loans," says Wantland, "it ultimately means the pool of capital for small business has been considerably enlarged."