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Increased lending to small businesses has been a slow process

Date posted:  8/14/14 11:15:00 AM It's not always easy for a small business to land a loan.

It's been a slow process, but banks are finally starting to crack open their vaults for small businesses seeking loans.

"When we had the downturn or recession in 2009 and 2010, everything came to a dead standstill," David Keller, president of a regional bank in the Midwest, told The Columbia Daily Tribune. "We had a high default rate. ... The market was really locked up for several years."

Keller said he felt the recovery first started in 2012, which was when requests for startup capital for businesses really started picking up. But a slew of requests didn't necessarily translate into banks doling out money to whoever asked. It's been a gradual rise, evident by the 5.2 percent increase in money that banks doled out for loans and leases from the end of the second quarter of 2013 to the end of the second quarter of this year.

In Missouri, there was even less cash distributed to businesses seeking capital. The dollar amount given for loans and leases increased 1.6 percent during that time.

Chris Rosskopf, vice president of commercial lending at a Missouri-based financial institution, told the Tribune that there is a growing number of entrepreneurs, startups and business owners looking to grow their companies - more so than in recent years.

"We are seeing more applications, more people that are interested in growth, expansion and are taking advantage of historically low interest rates," Rosskopf said. "I think people are looking at their financial picture and saying, 'This is a good time to borrow.'"

Lending still below standards
Although there seems to be a growing confidence among banks willing to lend and companies looking to expand, lending to startups and small ventures is still relatively meager throughout the nation, according to The Wall Street Journal.

At the end of the first quarter, banks held $585 billion in loans to small businesses, which was a slight improvement of one percent from last September. However, that's still 18 percent less than the peak of $711 billion in 2008.

One of the reasons for the slight uptick in confidence and lending has been that borrowers aren't going into the red as often. Lower default rates have helped banks steer clear of diving into loan loss reserve funds, and when banks don't have to dedicate as much income to replenish those funds, they are more likely to green light loans for small companies.

What to consider when acquiring a business loan
Forbes reported that small business owners hoping to obtain a loan should try to build relationships with their lender even before their business actually needs to borrow. Forbes said this helps build the framework for future business discussions because people tend to do business with who they know, like and trust.

It's also important to figure out exactly what the loan money will be used for. Strong reasons for taking out a loan include real estate, long-term software development, large seasonal sales variances or financing a piece of equipment, according to Forbes.

A few poor reasons for taking out a loan include acquiring non-essential business assets, office build outs and using the money to finance ongoing losses.

One misstep that many businesses continue to make is not asking for enough money. Forbes said underestimating the amount of money needed for a loan can lead to a laundry list of problems that includes a lack of working capital.

On the other end of the spectrum, if a business overestimates the amount of money needed, lenders might have worries about the credibility of a business or how well they have thought through their plans.