How to Get a Small Biz Loan

Ben Bernanke doesn’t think banks are lending enough money to small businesses.

At a press conference earlier this week, the Federal Reserve Chairman said that loans to small businesses have dropped from $710 billion in the second quarter of 2008 to less than $670 billion in the first quarter of 2010. In response, Bernanke urged banks to start lending to more creditworthy vendors. According to some experts, however, the problem is a bit more complicated than that.

“Banks are getting mixed messages from the government,” George Harrop, Managing Partner of CapitalSource’s Small Business Lending Group, tells MainStreet. “On one hand, you have Bernanke and the Obama administration telling banks to lend and on the other, you have their regulators who come in asking, ‘why are you making more loans when you are troubled already?”

Additionally, government programs, such as the American Recovery and Reinvestment Act, (otherwise known as the stimulus, which backed bank loans with federal funds) have expired and replacement legislation, such as the $30 Billion Small Business Lending Fund, is tied up in Congress. However, all hope is not lost.

“Banks are going to be more frugal, but they do have money to lend to someone,” Bill Bartmann, a small business expert, explains, comparing a small business owner’s pursuit of a bank loan to a beauty contest … or an appearance on popular reality-based TV show The Bachelor where “someone’s going to get the rose.”

But how exactly can you get your bank to put a ring on it?

For starters, chose your venue wisely. Many big banks don’t offer assistance to start-ups and, if they do, their lending practices are fairly stringent. Your best bet is to try a small or local community bank. According to Bartmann, many of these establishments have more money to lend because they didn’t practice lax lending habits prior to the recession, a sentiment that is supported by Frank Sorrentino, Chairman and CEO of North Jersey Community Bank (NJCB).