Tucson - Commerce Bank advice on small business loans

By fdawson@commercebankaz.com">Fred Dawson, Inside Tucson Business
Published on Friday, April 24, 2009

Small businesses make up the majority of all businesses in Southern Arizona and are the anchors of our community. It is important they continue to thrive. Small business owners also should know some of the ways they can increase their chances for getting the loans they need to operate successfully.

It is true times are difficult for most businesses. It’s especially so when attempting to obtain the funds they need.

Based on the current recession, only the highest quality loan applicants are being approved. However, it is important to know that if owners need a small business loan, there are ways to obtain one to keep a company running.


If owners make a loan request in order to recoup losses, it is essential for them to create a financial plan explaining how the business will make a profit and repay the loan. The plan should be detailed, including specific metrics for increasing revenues or reducing expenses based upon past results. With most businesses currently experiencing decreased revenues, the challenge will be to predict increased revenues.

Similarly, if a loan request is for business expansion, owners should provide a detailed business plan with cash flow projections, in addition to a general narrative. A description of your plan should accompany a pro-forma balance sheet and income statement with your assumptions clearly spelled out. Producing a detailed personal financial statement along with two years of personal tax returns will also be a requirement to secure the loan.

Loan officers are taught to look for both primary and secondary sources of repayment from their loan applicants. In the event a planned primary source does not materialize, collateral such as real property, vehicles, equipment, stocks and cash is typically the backup. This can also include uncertain kinds of collateral, such as accounts receivable, inventory, leasehold improvements, computer hardware and software and telephone systems. Of course, the more certain the collateral is, the easier it will be for a business to obtain a loan.

Not all banks will turn away good loan requests. Many larger banks that are overwhelmed with bad loans or are inwardly focused have declined a number of credit-worthy applicants. But community or mid-sized banks may approve these loans.

The smaller institutions can invest time in allowing applicants to talk directly with loan officers, who will make the decision or recommendation on the request, document the loan and will service the account personally. Often, time permitting, community and mid-size banking officers will travel to a business to meet personally with the owner.

With the hands-on approach and local knowledge a community or mid-size bank can offer, they also like to get their arms around the entire business and not just be a loan provider. Bringing in deposits and opening accounts at institutions of this size is necessary.

Our government has also created easier ways to receive loans as well, as President Obama’s administration is working to purchase close to $15 billion of securities linked to small-business loans. Entrepreneurs nationwide, as well as in this region, have a stronger chance of growing their business and the effort should lead to banks of all sizes approving more applicants. Of course, those that request loans and do not have a sound financial plan to prove their business can repay the bank will likely be turned away.

Unfortunately, credit-worthy owners with detailed financials may still be met with hesitance. The banking industry as a whole is healing from the economic downturn and it will be a while for some institutions to warm to risk-taking again.

The more guarantees and collateral small businesses can offer, the greater the chance a loan will be approved .

With some efforts to increase cash flow by revising business plans and researching new banking options, Southern Arizona businesses will have a greater chance of staying afloat during the recession.

I encourage those in need of a loan to push forward and get necessary credit, ultimately affecting the region’s ability to maintain itself as a viable business climate.

Contact Fred Dawson Jr., executive vice president and chief credit officer for Commerce Bank of Arizona, at fdawson@commercebankaz.com or (520) 325-5200. Commerce Bank is a locally-owned community bank specializing in serving small- to mid-size businesses in Tucson.