For a bank to be a cornerstone of its community, it needs to help build the community.
Community banks that are of real value to the local economy work closely with small businesses. For many small businesses, community banks are their only source of credit. Credit that’s needed for salaries, equipment, and goods and services that further bolster the economic health of your locale.
Small business loans do present certain risks. Small shops don’t always have the professionals on staff to guide them through the financial strategies that make their business as sound and stable as larger firms.
But, there are ways to comfortably and profitably lend to local small businesses, and stand out from your competition as a community lender – and the community builder – of choice.
If you want stronger relationships and more engagement with your local business community, show them you are committed to their success. Help small businesses access the credit they need to:
Establish a presence in your community.
Expand an existing company.
Provide local jobs.
Support the local economy through the purchase of goods and services.
Concerned about risk?
You're not alone. Lending officers are trained to avoid risk, and for good reason. But, if you reflexively shy away from lending to small businesses, you are missing out on lucrative opportunities for your bank that will position you as a trusted resource within the community.
VITAL Financial Services will help you tap into the lending resources available through the SBA and USDA that support small business and help manage your risk.
Here's our top 3 tips for using government-guaranteed lending to support small business borrowers:
1. Leverage the power of government guarantees – SBA and USDA programs – for making credit available to small businesses.These programs are designed to allow you to make loans to businesses that would not normally fit your ideal credit profile.
2. Structure loans based on the cash flow of the borrower, not the collateral. Many local businesses – while successful – lack hard collateral. The SBA 7(a) program will allow a lender to make a loan based upon the repayment ability of the borrower, irrespective of the amount and type of collateral they have. The government guarantee “stands in” for the collateral.
3. Extend the term of the loan to enable stronger cash flow and increase the financial stability of the borrower. Cash flow is king for small businesses. Extended terms reduce the loan payment and allow the business to build cash, increasing its financial strength.
These tips may run counter to the way that you currently extend credit to small businesses – but they work time and time again. We will continue to cover in future articles how you can easily and profitably become the community bank of choice for the local business community – without extra risk.
If you're ready to become the go-to bank, contact me to learn more.
Michael Slater, President
VITAL Financial Services