Getting a business loan just got harder

I was a commercial lender during the Great Recession. So, I got an inside look at how hard it became for companies to get approved for new business loans during the 2008-2010 time frame. It was also hard for businesses to get credit facilities renewed.

Getting a business loan isn’t quite that hard. At least, not yet. But, it is getting harder to get approved for a new business loan.

Every quarter the Fed surveys senior loan officers at banks to understand if their underwriting criteria have loosened, remained about the same, or tightened.

Recent results show that across the board, getting approved for a new business loan is getting harder. Over 40% of survey respondents said that their loan criteria have tightened. Zero percent said that they have eased their criteria.

Details from the senior business loan officer survey

The results were broken down between middle/large lenders and smaller firms (revenue <$50M).

Here are the details:

• Standards for C&I (i.e., non-real estate loans)
• Middle to large firms - 55% remained unchanged; 43% tightened somewhat; the rest tightened significantly.
• Small firms - 56% remained unchanged; 41% tightened somewhat; the rest tightened significantly
• Standards for CRE (commercial real estate)
• Across the CRE loan types such as construction, development, multi-family, etc., on average, 53% of lenders said they had tightened their criteria somewhat.
• Other findings:
• For C&I loans, the bulk of the change in standards was centered around higher loan spreads, i.e., loan rates and premiums charged for riskier loans.

What’s driving these changes in standards? According to the survey, the biggest concerns were centered around the current economic outlook, reduced tolerance for risk, and concerns over the lender’s liquidity position (i.e., the SVB issue).

What to do if you need a business loan

If you anticipate needing a business loan, then I suggest getting the process started. I fully anticipate these responses to look worse in the next quarterly report. The survey showed that delinquencies are starting to add up. Once those losses become realized, lenders will pull back even further.

This could also be a good time to consider partnering with a commercial loan broker. If they have a wide enough network of lenders they work with, they should be able to help improve your chances of getting a loan approved.

Just ensure you work with a broker that only charges a success fee. Don’t pay any upfront money!

Now’s a great time to start a business as a commercial loan broker. With lending criteria tightening, a good broker can add a lot of value to companies looking for business loans.

You can start your own commercial loan brokerage with my course, Commercial Loan Broker in a Box. Click the button below to learn more.