Monday, 02 February 2009 00:00

We're frequently asked what is important to a bank to approve a business loan? Last month I had the pleasure to hear some critical answers firsthand from Martin "Marty" McKinley, the president of Wells Fargo Business Credit at Louisville Venture Club. McKinley started his talk citing the common stories of financial demise (Lehman, Bear Stearns, Goldman Sachs) much to the chagrin of the typical-upbeat entrepreneurial crowd. However, he wasn't without humor by saying "I thought a tarp was something you used to cover up a mess and maybe it is." Of course, he was referencing the heavily-debated Troubled Assets Relief Program and acknowledged the funds could help some banks in need. From the wide-ranging economic discussion, I found two key themes of interest: what to expect from banks and how banks can get back on track. In the near-term, McKinley said we should expect the following 2009 business loan trends.

1. More scrutiny and sensitivity testing for traditional asset-based loans
2. Less appetite for cash flow loans with under secured layers
3. Less appetite for term loans based on real estate or equipment
4. Less appetite for underwriting and placing larger transactions

McKinley did not avoid identifying where banks have gone wrong and suggested a few steps to help "fix" asset-based lending such as refocus on strategy, balance sheet construction and restriction of credit. His final two points are very intertwined since banks are re-focusing on improving their own balance sheet and therefore causes a restriction of capital for lending. My translation of these key points are banks will re-focus on analyzing the loan applicant. They want to see good cash flow and collateral. Combine the renewed interest in loan analysis with a lack of credit and the need to find the right bank becomes even more important. MoneyPath's matching system helps you find the lender that best suits your loan. Your nearby branch may not be the best bank for your loan and I hope you let Moneypath help that process.