Time was when a penny saved was a penny earned. Now a penny saved is, well, a penny.
Interest rates on personal savings accounts are so low that it”™s not even worth the IRS”™ time to tax them. Indeed, banks are getting money from Uncle Sam at bargain-basement rates ranging from 0 to .5 percent. So that must mean it”™s a good time for small businesses to get a loan from a bank, right?
Not exactly.
Currently, small businesses can get a fixed rate of 6.5 to 7 percent, says Louis D. Scamardella ”“ who is a counselor with the New York State Small Business Development Center in White Plains, a nonprofit organization primarily funded by the Small Business Administration that offers technical assistance. Or, he says, you can get a variable rate SBA loan at 2.75 percent plus prime, which is 3.25 percent. (Actually, the bank loans the money. Under the federal stimulus package, SBA guarantees anywhere from 75 to 90 percent of the loan.)
Still, it”™s all relative, says John D”™Agostino, senior vice president of business banking at Key Bank in Tarrytown: “Even though rates on deposits are low, rates on borrowing are low as well.” A 5 percent mortgage rate today, he adds, might”™ve been 8 percent a couple of years ago.
Anyway, Scamardella says, “The interest rate becomes irrelevant. It”™s getting the loan that”™s the issue. And getting the loan is proving to be difficult. It is more difficult in the current economic climate.”
“Banks just aren”™t lending,” says Benny Santella of Santella Business Solutions, an accounting firm in Montrose. “I”™ve seen it with some of my own clients. It”™s very difficult even to get a credit line or a credit line extended.”
Bankers ”“ who”™ve been burned in the past for lending to every Tom, Dick and Harry ”“ see it differently.
“No bank has stopped lending to small businesses,” D”™Agostino says. “But we”™re under the scrutiny of federal regulators to make pristine loans.”
Besides, says Stephen Dormer, executive vice president of commercial lending and strategic planning at Provident Bank in Montebello, “Small businesses have been reluctant to borrow. Instead, they”™ve been shedding debt.”
The credit crunch is beginning to ease. Confidence levels are rising, says Dormer, whose bank is among those ”“ along with Key Bank ”“ that have been advertising and lending, often to new customers, throughout this thorny period.
On May 20, TD Bank will be conducting a “Small Business Blitz” in Westchester County, meeting face-to-face with small-business owners it”™s identified.
Meanwhile, businesses that have been denied a loan from one bank may have a shot at another through the Second Look Program, Credit for Success ”“ now available throughout New York state, thanks to Sen. Charles E. Schumer, Scamardella says.
Among those taking advantage of the program is Benny Santella, who plans to use his loan, once it”™s finalized, to consolidate his debt and hire part-time help to expand his accounting business into the area of financial services.
“The bigger banks have certain criteria, and if you don”™t fit those, that”™s it,” Santella says. “Second Look looks at the individual ”¦ and analyzes what you”™re going to do.”
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Tips for borrowing
Have a thoughtfully developed plan for how the bank can help your business get started or grow. “If you”™re able to articulate your needs,” Stephen Dormer says, “you”™ll be more successful.”
Position the loan as a positive growth strategy. “Don”™t say you need to pay the rent,” Louis Scamardella says.
Seek the appropriate type of loan. Don”™t ask for a line of credit for $165,000 ”“ more appropriate for operating costs ”“ when what you want to do is undertake a construction project, Scarmardella says.
Know your credit score (myfico.com). Particularly in the beginning, he says, “You are your business, and your business is you.”
Understand that “no” is not necessarily a bad thing. With the right plan and the right bank, you can turn it into a “yes.”
