As the recession slowly eases, many of the complaints about the slow pace of recovery are coming from the small business community. One common gripe: the reluctance of the banking industry to lend money.
However, a survey from the International Federation of Accountants (IFAC) shows that banks may be more willing to lend to small and medium-sized enterprises (SMEs) in the future. Out of the more than 350 bankers who responded to the survey, more than 20 percent said that they would likely increase the number of new loans over the next two years, as well as raise loan amounts for their existing small business clients. Only two percent reported they would lower the number and value of loans to small businesses.
But borrowers will be up against harsher standards to get these loans. “We’ve moved from a period of very soft credit to a period of tougher credit-granting criteria,” said Robert Bunting, IFAC president. “I don’t believe that will revert back in the near term and I don’t believe we will ever see the days when businesses had to fend off lenders. Going forward, businesses need to be prepared to create a package that sells them to a credit-granter. That package will need to be more comprehensive than what they have been used to.”
And, more than ever, lending institutions will be considering the following: cash-flow information, collateral, and customer-bank history.
How best to tackle these new standards? It turns out that hiring an accountant might be a good place to start: 60 percent reported that a small business with accountant involvement would be looked at more favorably in lending decisions. That means making use of accountants (both outside accounting firms and in-house individuals, as explained below) could really help you get that loan.
Here’s where it ‘counts’ when you're considering using an accountant:
1. Employing one on-site is a good idea. “Of out approximately 1.4 million private firms in the United States, only about 20,000 have professional accountants employed by the business,” explained Bunting. “The rest rely on a relationship with an outside firm or individual [that doesn't] have the capability to put together the cash projections and financial statements now necessary.”
2. But even if you have an on-site accountant, it is strongly suggested you also retain outside help when applying for a loan. Around 66 percent of those surveyed said that their policies "require some form of assurance on the entity's financial statements from an external accountant, and audited financial statements are preferred by most respondents," according to the IFAC press release.
3. The most important thing to remember: "The key for a business is to be able to access the expertise needed to put together a package that is compelling for a lender and to shop that package to get the best terms and conditions,” emphasizes Bunting.
For more information, please reference the following resources:
IFAC, the global organization for the accountancy profession