In Tight Credit Market, A Tool For Small Businesses | WAMU 88.5 - American University Radio
Filed Under:

In Tight Credit Market, A Tool For Small Businesses

Play associated audio

When small-business owners start looking for money to expand, they often begin at a big bank. The banks are highly visible, well-known and often nearby.

But many small-business owners report that they have struggled to get loans in the wake of the economic downturn.

Ami Kassar, CEO of the small-business-loan broker multifunding.com, advises business owners that large banks are "not the best place to start" when looking for a small-business loan.

Kassar has created bankinggrades.com, a website that gives every FDIC-insured bank in the nation a grade based on how many small-business loans it makes. He used data from the Federal Deposit Insurance Corp. to create the site, designed to help small-business owners find the best loan.

Turned Down Cold

Patricia and Jim McGrath own Branches Atelier, a preschool in Santa Monica, Calif. Their existing space had grown too small and they wanted to expand. Late last year they found the perfect site, but they needed a loan to buy the building.

"So we first approached my own bank," Patricia McGrath says. "It's one of the large banks, and I've been banking with them for over 20 years. And it made sense that we would go with people that we knew."

The McGraths thought it would be a relatively simple process. Their business was solid financially, they had money for a down payment and they had always had a long waiting list of prospective students.

Moreover, the mortgage payment on the new building would have been little more than their existing rent.

Even so, the bank — one of the nation's very largest — turned them down cold.

"I was shocked. We have excellent credit, and we have money in the bank," Patricia McGrath says. "I couldn't understand why they wouldn't be willing to give us a loan. It didn't make any sense to me."

Big banks "are able to go out and lend hundreds of millions of dollars here and there," Kassar says. "For them, these little loans are a pain."

He says many small-business owners may have better luck with smaller banks.

"In comparison, for smaller banks, the community banks, their business is small-business lending," Kassar says. "And that's the best choice, in our opinion, for small business to go to get a loan."

Very small loans don't produce much profit for big banks. But community banks typically have a mission beyond making money. Many want to help build and enhance their communities — and many of those institutions top the Banking Grades list.

Bigger Banks Wary

Banking Grades rates banks based on the ratio of business loans of $1 million or less to total domestic deposits.

The Financial Services Roundtable, which represents big banks, quarrels with the metric. The group argues that the measure doesn't consider all factors. It also cites efforts by large banks to increase their small-business lending.

But Keith Weigelt, a small-business-finance expert with the Wharton School of Business, says Banking Grades can be a valuable tool for small-business owners.

"If I was a small business, I would welcome that," Weigelt says. "First of all, it would save me an awful lot of time in terms of search costs."

Indeed, the McGraths say they spent an incredible amount of time and energy trying to secure the loan for their preschool. In addition to being turned down by their giant bank, they were strung along — and then rejected — by a midsized one.

Finally, the couple turned to a community bank, Orange County-based Plaza Bank.

That's where they found a banker who wanted to give them a loan — and then did.

"Ultimately, if you don't get the right bank — no matter how good you look on paper — you're not going to be able to move forward with your business," Patricia McGrath says. "And that's really unfortunate."

The McGraths are nearly done painting their new building, and they're working on a new play structure and a garden.

They are also hiring — adding about a half-dozen full-time jobs.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.

NPR

Mia Wasikowska On The Sounds Of Camels And The Lure Of Travel

Melissa Block talks with actress Mia Wasikowska about her new film, Tracks, which follows a woman on a long journey with only camels and a dog for company.
NPR

Giving Chickens Bacteria ... To Keep Them Antibiotic-Free

What does it take to get chickens off antibiotics? According to Perdue Farms, an added dose of the "good bacteria" known as probiotics can help crowd out the harmful microbes that make a chicken sick.
NPR

Why Did Congress Kick The Can On Funding Islamic State Mission?

The president got approval for his plan to train and equip Syrian opposition fighters, but lawmakers didn't approve funds to pay for it or the broader air campaign.
NPR

Some Tech Firms Capitalize On Privacy

Steve Henn of NPR's Planet Money team profiles some entrepreneurs who are working on a novel business model to start up a new tech company. It's pay for service. What a concept.

Leave a Comment

Help keep the conversation civil. Please refer to our Terms of Use and Code of Conduct before posting your comments.