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3 alternatives for small biz lenders when 2010/11 is looking up

In today’s Wall Street Journal, an article on Banks Reach Out to Small Firms caught my eye.

groceries.pngIt starts with a branch manager in a grocery store following a customer around who also owns a business and enticing him back to apply for a small business loan, which she was able to make.

The recent economic struggles have left lenders with a challenge if you are relying on historical cashflow figures. The Tax Return Analysis training I present to business lenders focuses on calculating historical/recurring/projected cashflow and we are certainly talking about other indicators these days. So here are three indicators other than cashflow mentioned in the article:

  1. BB&T and J.P. Morgan Chase & Co.
    say they are looking more closely at quarter-to-quarter comparisons
    when they evaluate small-business loan applicants to see if there are
    signs of a turnaround.
  2. Bank of America now gives more weight to orders
    and anticipated revenues
    when weighing a company’s prospects.
  3. Loan officers at Webster Bank have been told to put more emphasis on
    character
    . “We want to recognize those people who have made the
    necessary changes in their business,” says John Guy, head of
    small-business banking.

I have three questions for you:

  1. What are you weighing more heavily to determine if the small business you are interested in has turned around?
  2. Are you finding the regulators focused too much on recent historical cashflow, not enough or about right? Are they on board with alternative ways of looking at credit-worthiness?
  3. If 10 is loose and 1 is the tightest it has ever been, where are your underwriting standards related to small business loans? Never mind. Don’t answer that just in case the regulators are reading. ‘-)

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at www.LendersOnlineTraining.com, she speaks at banking associations on risk management, lending and director finance topics.