The email from the bank was unexpected. Laura Benson got an increase in her small business credit line.
The boost from Wells Fargo & Co. was a pleasant surprise. A previous request for an increase to meet expenses during a slow sales period for her online basket business, Jeanne Beatrice, was rejected. At the time, the bank said the St. Paul, Minn., company didn't have enough of a payment history on the loan. Six months later the good news came.
"They just gave me the $7,000, without my asking," Benson says. "Omigosh, just when I needed it."
The logjam in lending to small businesses is showing signs of clearing. Nearly five years after the recession ended, bankers are lending more and businesses say it's easier to get loans. Banks are courting company owners and giving them easier terms. Still, caution remains, especially when a business is young or considered risky. But overall, lending is up, a hopeful sign for the economy because small businesses that borrow may be willing to expand and hire.
Evidence that small business lending has improved is piling up. Banks had $287.64 billion in outstanding loans to small businesses as of Dec. 31, up 1.4% from a year earlier, according to the Federal Deposit Insurance Corp. In January, the dollars loaned to small businesses by banks, independent commercial finance companies and corporations, increased 4% from last year, according to Thomson Reuters and PayNet. And a February survey by Pepperdine University's Graziadio School of Business and Management found that 39% of small business owners who applied for bank loans in the previous three months were successful, up from 34% in a survey taken in October and November.
Banks are knocking on Andrew Slattery's door. The owner of 26 Valvoline Instant Oil Change franchises in North and South Carolina had previously gotten loans to buy locations, but also had about 20 rejections. It's easier now. Once stringent requirements have eased with banks offering 10-year loans, double the five-year terms they pushed in recent years.
"The turnaround time is faster. It used to take seven or eight months, where now it's two or three months," says Slattery, who just closed on a $10 million loan to refinance some of his locations.
Small business loans at Wells Fargo rose 18% last year, says Lisa Stevens, head of small business banking for the San Francisco-based bank. Companies' sales and cash flow are improving as are balance sheets, Stevens says. The bank is offering credit line increases if Wells thinks owners are better positioned to handle the debt.
Companies with healthier finances and carefully thought-out expansion plans have convinced Providence, R.I.-based Citizens Bank that they are good loan risks, says Quincy Miller, head of business banking. Citizens lent 10% more money to small businesses last year than in 2012. The bulk of those loans came in the second half of the year.
Less rancor in the federal government has made banks more confident about extending credit, says Jeff Stibel, CEO of Dun & Bradstreet Credibility Corp., which compiles credit reports on small companies. When bickering in Congress shut the government down and put it on the verge of defaulting on its debt, banks recoiled. Since the shutdown ended in mid-October, there has been relative peace in Washington and money is flowing again.
But a new business can still find it's tough to get a loan.
Jonathan Stegall, who wanted a loan to start his medical practice in the Atlanta suburb of Johns Creek, applied to two big banks that advertised as doctor-friendly. At one, branch loan officers were optimistic, but when the $100,000 application started moving up the corporate chain, he was rejected because he hadn't been licensed for three years.
"They said, 'that's our policy, we cannot be flexible about it,'" Stegall says.
Another bank rejected a $50,000 application because of his high debt-to-income ratio. He has medical school loans and the practice hadn't opened yet. Stegall got a loan from a family member and opened his office this week.
Some owners find they have an easier time at smaller banks. Keith Miller applied for loans for his Minneapolis businesses, Pampered Pooch Playground, a doggie day care center, and two self-service dog wash stores. He was turned down by three big banks -- even by the one where he does his personal banking. One offered no reason. Another called his business too risky.
But Miller landed loans totaling $155,000, from a small bank. He thinks the loan officers there were able to see the potential of his businesses.
"Their rates are higher (than big banks')" he says, "but it's worth it knowing that they're able to look out of the box and say you're a good risk."