Banks Are Increasingly Small Business Friendly
A few decades ago, it wasn’t easy to get a small business loan from a bank. Banks held all the leverage, and you would never go to one of “the big guys” to fund your business. Only the relatively small, local banks took the time to go after your market. According to a Federal Reserve study from 1996, small banks (under $1 billion in assets) lent nearly two-thirds of the money small business owners used to capitalize their companies.
However, in recent years, competition among banks has in-creased. Small banks still target small business, but big banks have gotten in on the game as well. According to MSNBC, from just October 2003 through July 2004, Bank of America, the largest lender to small business in the United States, re-ported over 10,000 new small business loans, for a total of $372.9 million.
Perhaps the big banks have figured out that some entrepreneurs end up being downright wealthy. Small business can be a great entrée into the world of high net worth individuals. Or the person’s business goes from generating $100,000 per year to generating $10 million per year. If the bank can gain that business early, they know it might lead to bigger things down the line.
It has also gotten easier for banks to analyze and quantify the risks. Scoring methods changed the entire credit industry by making it easier for lenders to match rates to credit risk for things such as a car or home. In the late 1990s, big banks started using standardized scoring systems that also decreased the risk for small business loans. This allows banks to bundle loans and sell them to investors on the secondary market
