Dave Wood is CEO of Willamette Community Bank. I asked him for his insight into community banks, what makes them different, and how they can be a smart fit for small businesses. Part two of our Q&A is below. Read part one here.
What is your small business lending outlook for 2011?
From my vantage point, small business confidence remains muted. Small business credit demands are at very low levels. We have ample liquidity and are in a strong position to loan, but demand is weak. It is my opinion that small business concerns are currently geared toward a desire to see a decrease in unemployment and decreased government regulation and taxes — credit availability comes after these other items. Small business owners have not bought into the notion that the recession is over and believe it will last well into 2011. Thus, not looking to grow employment or make major or even minor capital expenditures. Small business owners believe a normal unemployment figure is 5.5% and generally do not see this occurring until sometime in 2013 — which means having to tough out 2011 and 2012.
Describe the basic elements of successful small business loan application.
A complete packet that includes: Basic information about the business, loan purpose, amount requested, business history and nature of the business, ownership structure, management resumes. We look for an understanding of the market the business will serve, its competition, how the business profiles its ideal customer or prospect, some semblance of understanding cash flow. We review financial statements (balance sheet and income statement) for a minimum of three years, personal financial statement with three years of tax returns, collateral to be offered, and the owner’s equity contribution to the business.
Can you share some common mistakes small businesses make when applying for credit?
Not following through if the bank requests additional information for your application. Another big mistake to avoid: Over-relying on your CPA to help prepare the financials and the application packet. When we ask questions and the business owner says, “You will have to call my accountant,” that’s not a good sign.