How to make your small business attractive to lending institutions

There’s no doubt about it, when interest rates are up, it’s harder for small businesses to get a loan.  

High interest rates mean overall credit conditions are tightening, according to Jeffrey Drobins, Executive Vice President, Chief Lending Officer at Peoples Security Bank & Trust, which has a branch in Lebanon.   

“Banks are more focused on deposits than loans,” he says. “This is the first time in 10-plus years for this shift in strategy. Lenders are looking harder at the profitability of every customer relationship.”  

But that doesn’t mean all hope is lost, Drobins said. For starters, small businesses that package full relationships with a bank are the most appealing.  

“If you’re talking to a bank about a loan, packaging other services like deposits, treasury management, merchant/credit cards, wealth management, etc. will make you the most attractive to a bank that you’re interested in conducting business with. If you are just simply seeking out a transactional loan, and refrain from moving the other pieces of your relationship to a bank, in terms of attractiveness as a prospective customer, you may not rank as highly favorable by comparison.”  

In general, Drobins adds, bankers want to develop personalized relationships with their customers, built on trust, transparency, and delivering an exceptional customer service experience. “The success of any business hinges on relationships, especially with a bank. A business that doesn’t connect with a bank may be missing out on key products or services that their bank can offer that would support its organic growth strategy,” he said.    

Drobins offered a bit of advice for small business owners who are seeking funding in the current tighter financial marketplace. “First and foremost,” he said, “be prepared before you talk to your bank. Meet with your accountant before you set up a meeting, finalize your tax returns and update your business and personal financial statements.“  

Ideally, businesses should talk to their bank well in advance of when they need funding, he adds. Beyond that, Drobins encourages small businesses to make sure to consider smaller, community banks when considering their options.   

“Don’t discount the advantages that a community bank offers in comparison to its larger financial counterparts. They are committed to reinvesting into a community,” he says.  

Drobins’ other tips include doing your homework to make sure the community bank is familiar with the local market they serve. “Select a bank that understands your business and doesn’t try to fit you into their ‘box’ because you are just a small fish in a big pond,” he adds. “Get to know the bank employees and their processes and make sure you’re comfortable with both before you jump in with both feet.”   

Drobins said he hopes things will loosen up soon.  

“The latest economic data seems to be supportive of a Federal Reserve rate pause after the May FOMC meeting,” he said “A pause should create some stability in the market. If we get that rate pause and our elected officials agree to increase the debt ceiling without a whole lot of posturing, I believe toward the end of 2023 we could potentially see things start to turn around.”     

In the meantime, he said businesses should be sure to hold on to liquidity, look at their expenses to see if they can shed anything unnecessary, and view their contracts and check if you can make adjustments.   

Drobins said there are a lot of misconceptions about small business financing, including thinking that it has to be a long and frustrating process. “Being prepared and picking a bank which understands the community they serve make it fairly easy to obtain financing,” he said.   

In the end, Drobins said, there are no businesses that can always or never get financing.  

“I think that’s the whole point of having small, mid, and large banks. If you’re looking for a $100,000,000 line of credit, you need a big bank for that; but if you’re in need of a $300,000 line of credit, you should strongly consider talking to a small local community bank. Smaller local community banks typically are more flexible and can adjust product offerings to fit the unique needs of a business owner whereas larger banks cannot,” he said.  

Jennifer Marangos is a freelance writer