Overall lending plunged 7.5% in 2009, the largest decline since 1942, according to the Federal Deposit Insurance Corp.
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"That trend is continuing; times are very tough," said George Cloutier, chief executive of Orlando, Fla.-based American Management Services, a consultant to small businesses.
However, companies with sound business strategies still can borrow. Options include loans from traditional banks and institutions affiliated with the Small Business Administration, as well as financing from Internet-based lenders.
"For creditworthy, high-scoring small businesses, there is money available," Cloutier says.
The best place to get a small-business loan is still a bank, Cloutier and other experts say. Banks typically offer the lowest interest rates and many have established reputations as trustworthy lenders.
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But today, small businesses must expand their search to find a bank willing to lend.
"Many small businesses try three or four banks and then stop looking," Cloutier said. A more persistent approach has better odds of success.
"Take out the phone book, target 10 banks and work through that list," he said. "With enough aggressiveness, you will find who might be able to make loans."
That strategy worked for Michael McKean. He is chief executive of The Knowland Group, a Salisbury, Md., company that helps hotels fill up their meeting space. The success of The Knowland Group left McKean searching for a bank that would give the growing company expanded access to credit.
"We talked to every bank in our area, at least a dozen," McKean said. "Many came back with proposals, but the terms were very onerous. Or sometimes they shifted terms."
Finally in November, M&T Bank came through.
"They just wanted to get our business," McKean said.
McKean said his company did not approach M&T any differently than it had approached the other banks. It was just a matter of being persistent until the right deal came along, he said.
"We did everything right, approaching the right person at each bank," he says. "We're a profitable business. I think it was just the weak economy and credit crunch that prevented us from getting a loan."
Cloutier said the key to success with banks today is to show past profitability, and to describe a well thought-out plan for future profits.
"If you aren't making a profit now, you must be able to tell the bank how you will change that in the short term, or you really won't be able to get a loan," he said.
He also recommends that businesses start small in their loan requests.
"If you need money for four trucks, ask for two," Cloutier said. "The bigger the loan request, the harder it is to get it approved."
Another way to find a bank loan is through the Small Business Administration, or SBA. The SBA can direct you to banks that offer loans guaranteed by the agency. This way, you'll have the advantage of approaching banks specifically interested in lending to small businesses.
In the fourth quarter of 2009, banks made 14,386 loans guaranteed by the SBA, up 38 percent from a year earlier. The gain stemmed largely from increased guarantees and reduced fees approved by Congress and the White House, said SBA spokesman Mike Stamler.
Such measures were part of the stimulus package and were originally scheduled to expire on March 28. However, Congress recently extended the fee reductions and loan guarantees through April 30, or until funds are exhausted.
For now, interested businesses should contact the SBA office nearest to them, which can be found on the agency's Web site. Jeanne Hulit, the SBA's New England region administrator, urges businesses to seek a bank that is an experienced SBA lender.
Banks granting SBA loans are placing increased emphasis on business plans, cash flow and profit forecasts in deciding whether to lend, she said. The SBA also can refer businesses to free counseling centers to improve their performance.
Another source for loans is the Internet. There are several sites where businesses can seek alternative lenders such as individuals and small companies.
One such site is RaiseCapital.com, based in Port Washington, N.Y. The site has a network of more than 5,000 investors and lenders, says Robert Bertsch, RaiseCapital.com president. Loans made on the site range from $10,000 to $2 million.
"We see more and more small companies or individuals teaming up where banks won't," Bertsch said.
Interest rates range from 8% to 15%. While that's generally more than a bank will charge, it's much less than what you'll have to pay on many credit cards.
Companies that use RaiseCapital.com pay a one-time fee of $99. Some other sites -- such as ondeckcapital.com, BusinessFinance.com and LendingClub.com -- are free, although their costs are likely to be reflected in loan rates.
If you're going to list your company on one of these sites, describe your business in clear and concise language.
"You can't have typos," Bertsch said. "Right away that will turn off whoever is looking."
Make sure you don't give away any proprietary information and consider using pictures or videos.
"It's true that a picture tells a thousand words," Bertsch said.
Dan Weil is a freelance writer in West Palm Beach, FL.