These are indeed "uncharted waters," as many analysts assert. Credit markets have tightened tremendously, which has caused some lenders to grow more cautious about their loans and risk profiles.
That trend has been illustrated in a slowing housing market impacted by stricter loan guidelines. In the meantime, the federal government has taken a hands-on role in trying to thaw the frozen components of this very complex system.
Many people may fail to realize the critical impact these very changes have had on small business owners. It's significant because small businesses make up the nation's largest single portion of employers. These businesses number somewhere near 27 million throughout the country. According to the Indiana Small Business Development Center, small businesses make up about 97 percent of the state's business community. These businesses generally have fewer than 500 employees. Most employ fewer than 20 people.
Regardless of size or industry sector, their impact is undeniable. Small businesses are responsible for about half of the total output of the U.S. economy. Countless small businesses grow and thrive as they exchange goods and services with their customers, suppliers and business partners.
In fact, most of us have regular—if not daily— interaction with small businesses of all kinds, assuming we shop with local retailers, work in offices built by small construction firms or interact with our customers. It's why a recession or even a sustained downward trend can result in profound job losses or a weakened economy.
Small business owners make a major impact on our daily lives, regardless of our awareness levels. That's one reason why they also need extra attention from banks during these economic ups and downs.
After all, small-business banking remains a critical daily enterprise for many banks. That's why it should matter when most small businesses say they've experienced a negative effect from the credit crunch. Banks of all sizes have tightened their lending standards, but many may have done so too aggressively as they retreat from risk. Many lenders have even withheld credit completely.
Healthy banks have adopted stronger risk prevention measures for good reasons, but it's important to know that well-performing banks are still writing loans for small business and servicing their needs every day. This fact is easily lost in today's "breaking news" media.
At a time like this, it might be helpful to consider tips for small business owners both those that are well established and others who are just starting out. Sure, this might sound like a tough time to grow or establish a new business. But there's a good reason why Inc. magazine declared earlier this year that it's a great time to start one. I couldn't agree more.
Here are some tips to consider if you're a small business owner or entrepreneur:
•Whether you're starting a new business or planning to grow an existing one, contact your local banker to explore the range of products and services offered by the bank and enhanced by the Small Business Association. The SBA and SBA-preferred lenders—along with resources such as the Indiana Small Business Development Center—have tailored programs that help business owners maximize their assets and build long-term growth.
•Some banks aren't lending right now, but many are operating in a business-as-usual sense. Either way you may need to approach your bank with a heightened spirit of organization, passion and determination, especially if you are planning to apply for a new loan. Processes and procedures are under heavier scrutiny today.
•Talk to your business partners and friends who own businesses. Don't forget that you can use your network to your advantage.
•Remember that loans aren't everything. To build a successful business, ask your banker about other needs, such as your cash flow, general business processes and other critical areas of your operation. An outside expert's perspective can often spot areas of inefficiency and help you find solutions.
Shepherd is senior vice president and business banking group manager of the Indianapolis operations of M&I Bank. Views expressed here are the writer's.