It is a disconnect that has been reported for months: Banks claim capital is available, yet small business owners say loans are difficult to obtain. Last week’s Small Business Lending Summit, hosted by the International Franchise Association and sponsored in part by the Consumer Bankers Association, aimed to resolve that disconnect and help boost lending in one of the areas of the economy that needs it the most.

Policymakers, small business owners and representatives from the banking industry came together to discuss programs in place to help business owners, best practices borrowers can adopt when applying for loans and the state of lending in an environment all agree has changed since the financial crisis. Solving the small-business lending problem is critical because of the role small businesses have failed to play in the recovery. Previously small businesses have led us out of recessions. That’s not the case this time due to financing issues, according to Chad Moutray, the former chief economist for the Office of Advocacy at the Small business Administration.

According to CBA President Richard Hunt, lending hasn’t returned to 2008 levels, but banks are making more loans this year than they did in 2010. “Make no mistake about it, we have tightened up our standards on the bank side because of the economic downturn,” Hunt said earlier in the week.

Lynetta Tipton Steed, the head of business and community banking for Regions Financial, said another reason for the decrease in lending is that many small businesses are taking a wait-and-see approach regarding the economic recovery. Those that are applying for loans are doing so to make improvements to their existing operations, rather than expansion, Tipton Steed said.

Mark Edwards, a senior loan administrator for BB&T, said the industry recognizes franchise operators are unique. “We feel that this is a job-creating sector and there’s a lot of growth opportunity here.” To seize some of that opportunity, Mary Navarro, the chair of the CBA and Director of Retail and Business Banking for Huntington National Bank, said her bank has actually loosened credit for small businesses. She also explained that Huntington no longer demands a full year’s worth of information from borrowers, but rather looks for just a couple of quarters of solid growth and projections.

In order to rejuvenate lending, many of the speakers suggested improving the relationship between bankers and borrowers. Some banks are hiring more bankers to provide better service. Others suggested businesses would do well to expand their relationship with the bank from which they are seeking a loan. Navarro said a bank that provides deposit and cash management services for a business is likely to offer that business better lending rates.

Mark Luppi, executive vice president and head of business banking at HSBC Bank U.S.A., N.A., and chair of the CBA Small Business Banking Committee, shared his key takeaways for all stakeholders.

Banks need to:

  • Develop franchise programs and build relationships with franchisors
  • Create a screening process that brings in high-quality applicants that can generate revenue
  • Leverage programs such as those available through the Small Business Administration that drive the desired risk profile
  • Look at every option to get to yes
  • Create an incentive program that drives their sales force to seek out opportunities
  • Move faster on loan requests

Small-business owners need to:

  • Build relationships with the banks in their markets
  • Create an introduction for their franchisees
  • Illustrate what they do to support franchisees
  • Invite banks to discovery days and highlight their franchisee selection process
  • Communicate their brand support and offer solutions for when liquidation is necessary.

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