One of the biggest challenges facing small business owners is finding the capital they need to fuel growth and fund working capital. If you happen to be one of the biggest small businesses, this isn’t a problem. If you happen to be one of the smallest small businesses, the type of business you’d find along Main Street, it gets a little more challenging—in fact, down right difficult.

Although very few of the Main Street business owners that make their first stop at the bank leave with a loan, I can’t lay the blame completely at the feet of the banker. Don’t get me wrong, in my opinion, there is some blame there, but acquiring a small business loan for Main Street is not only a challenge for the business owner, it’s a challenge for the banker too.

• The definition of what makes up a small business is jacked up: Yes, I said jacked up. Here’s why. I’ve spent my entire career working in small business. I’ve even owned a couple of small businesses myself. Most of the time in the very businesses you and I likely identify with as small businesses. I’ve also spent a few years in a company that would technically be called a small business, but isn’t the type of business you or I would identify with as “small.” In fact, it felt like a big business to me. There were over 250 employees and the last year I was there they did $30 million in revenues. The financing needs of that company were decidedly different than the needs of a small photography studio or a local restaurant. The average SBA 7(a) loan size of a little over $300,000 demonstrates that the SBA in particular, and the banking industry generally, are geared up to service the bigger small businesses.
• It’s expensive for bankers to make smaller loans: I know it sounds counter-intuitive, but the problem with Main Street isn’t that they need too much, it’s that they ask for too little. Underwriting a small business loan is a time-consuming and expensive manual process. For the bank, there’s little difference in the cost of processing a $50,000 loan and a $500,000 loan. From a strictly dollars and sense perspective, it’s hard to blame bankers for shunning the Main Street business owners looking for $10,000 or $20,000 dollars. However, here is where I think we can drop a little blame on these guys. There are community bankers who have made the conscious decision to bite the bullet and absorb the expense of helping Main Street because they understand the value those businesses bring to the community. I recently wrote about one such bank in a column for Forbes. I think more bankers should be doing the same. It’s not enough to talk about building relationships with small business owners and how important they are to the community.
• The SBA could help do something about this: Although SBA-guaranteed loans aren’t the only source of funds for small business owners, there are many community banks and other traditional lenders who wouldn’t be in the business of small business lending otherwise. The SBA could make the process a little easier for say, loans under $50,000. They already consider these loans as micro-loans, but making them easier (in other words more profitable) for bankers would encourage more of them. After all, Main Street creates a lot of new jobs every year and hires a lot of people. Doesn’t it make sense to encourage lenders to be more engaged?
• Main Street business owners share some of the blame: Having been a small business owner myself, I know that keeping the doors open requires times when some vendors might have to wait a little longer for their invoices to be paid than others. Unfortunately, robbing Peter to pay Paul causes problems down the road. Far too many of the smallest small business owners have horrible credit. I recently heard from a small business owner who obviously didn’t understand how important this was as he decried the high interest loan he was offered and exclaimed, “I just bought a brand new truck and they financed me at nine percent!” In today’s auto market, a nine percent interest rate is three or more times what someone with a good credit rating would pay. I don’t know his credit score, I didn’t ask, but judging from the auto loan interest rate he claimed, it’s very doubtful that he would be able to walk into any bank and get a small business loan. He should have been happy with the loan he was offered—it was likely less expensive than using his personal credit cards.
• Small business owners need to spend more time sharpening the saw: I think Abraham Lincoln once said if he had two hours to cut down a tree he’d spend the first hour sharpening the saw. The most common complaint I hear from lenders is the small business borrowers they talk to are seldom able to successfully articulate the financial health of their business, don’t have a thoughtful business plan, and often can’t even describe what they hope to achieve with the loan they’re looking for. The borrower that comes prepared with their P&L, a well-written business plan, and reasonable projections regarding how they plan to use the proceeds from the loan and the positive impact it will have on their business usually don’t have a problem finding he capital they need. “They need to realize they’re selling me on lending them money,” one lender recently said. “If I dig into the information and I can tell the business owner more about their business than they can tell me, I’m not too inclined to off them a loan.”

The last five or so years have been hard on small business owners. Many lenders understand—even if your banker doesn’t. Don’t be too hard on him or her, at some level their hands are tied. There are options though. You might end up paying a little more for the capital you need, but it is available. With the exit of so many traditional lenders seeking greener pastures, you’ll need to look a little harder to find a community banker willing to offer you a small business loan. You may also need to go online to find an alternative (read non-bank) lender. By the way, there are many alternative lenders who are anxious to lend small businesses and may even help you if you have less than perfect credit, they’re quicker at processing your loan, and you’ll have access to the cash much quicker than a typical bank loan.

If the first banker you see says, “No,” you’re not alone. And, you still have options. Don’t take “No” for an answer. A little patience and a little looking can yield results. I’d be remiss if I didn’t tell you Lendio is a great place to start. Hundreds of lenders, including banks, credit  unions, and alternative lenders are on the site anxious to meet you. What’s more, tens of thousands of small business borrowers, just like you, visit Lendio every month and get matched to the right financing to help their businesses grow. Check it out. You just might be surprised to hear someone say, “Yes.”