Tightening the Credit Screws; Community banks are still offering loans. But businesses have to jump through a lot more hoops to get them.
In the depths of the credit crunch, community lenders became a popular financing source for Main Street. But small-business owners may need to work harder to get support from local banks these days.</br></br>Even though most community banks came through the financial collapse in good health, with lots of capital and liquidity to extend loans, some of them have gone under. So, the Federal Deposit Insurance Corp., Federal Reserve and other regulatory agencies are increasing their scrutiny of local lenders to spot troubled assets and keep the banks in solid financial shape. As part of the effort, the watchdogs are asking the banks to boost their capital and loan-loss reserves even further--which means raising more money, getting more selective about making new loans and canceling the risky loans on their books.</br></br>The upshot for business owners: Local bankers now demand a lot more information about the business and its operations before they sign off on a loan. Entrepreneurs who land a loan need to give frequent updates about the state of affairs--and not just routine financial information, such as sales figures.</br></br>Bankers need deeper "information about what's going on with the business...for instance, if one of the [borrower's] customers is in financial trouble," says Kevin Tenpas, chief executive of Heartland Business Bank in De Pere, Wis., a part of Heartland Financial USA Inc. in Dubuque, Iowa.</br></br>Small-business owners who don't work closely with their lenders will find it much tougher to get financing. "I think it's even more important to have that relationship now than before," says Mr. Tenpas. "I think the tendency is for owners to not communicate if it's not good news, which is when it's most important."