The small business landscape has undergone a significant transformation in recent years. After weathering the storm of the Great Recession, business owners are reporting better earnings and reinvesting in their ventures, leading to a noticeable rebound in loan demand. Capital One, a prominent player in the financial sector, has witnessed this trend firsthand among its 3 million small business customers. Keri Gohman, Head of Small Business Banking at Capital One, sheds light on the current climate for small businesses and shares insights into the lending landscape. In this interview with The Associated Press, Gohman outlines the positive developments in small business lending since the recession, addresses concerns about overborrowing, and emphasizes the importance of responsible lending practices.
The Impact of the Recession on Small Business Lending
The Great Recession had a profound impact on small businesses, causing many owners to pull back and adopt a cautious approach. Small business sentiment reflected this concern about the uncertain future, leading to a significant decrease in loan demand. In response, business owners began saving their cash as a means of financial security. However, as the economy started to recover and sentiment improved, small business owners experienced a resurgence in their earnings and started reinvesting in their businesses. While not all business owners are using loans to invest, many are taking advantage of the savings they set aside during the recession.
Rebuilding Trust and Meeting Loan Demand
The recovery of the small business sector has resulted in a noticeable increase in loan demand. Application levels have reached pre-recessionary levels, indicating a growing confidence among business owners. Capital One has been able to meet this demand by focusing on responsible lending practices. The bank employs expert credit managers and specialists dedicated to working with small business owners to ensure they make well-informed choices.
Gohman emphasizes the importance of avoiding overextension, as both business owners and lenders strive for financial stability. Capital One has observed that many business owners prefer lines of credit due to their flexibility. For those at an earlier stage of business development or coming out of the Great Recession, starting with a smaller line of credit and gradually increasing it as the business becomes more established is a popular approach. Additionally, Capital One offers loans backed by the Small Business Administration (SBA), which provide opportunities for companies that may not qualify for conventional loans.
The Role of the Small Business Administration
While awareness of SBA-backed loans is relatively high among small business owners, the percentage of businesses actually taking advantage of these loans remains low. Capital One recognizes the importance of these loans in supporting businesses that may not be ready for conventional lending options. By partnering with organizations like Kiva and Accion, Capital One works to find alternative solutions for business owners who may not meet the criteria for a traditional loan. Furthermore, if a loan application is rejected, Capital One aims to support the business owner by helping them prepare for future loan opportunities.
Responsible Lending Practices and Support
Capital One places great emphasis on responsible lending practices. The bank strives to understand each small business’s unique plans, goals, and historical performance. Loan officers work closely with underwriters and support professionals to make informed decisions that best serve the customer. If a conventional loan is not feasible, alternatives such as SBA-backed loans or partnerships with small loan program providers are explored. This holistic approach ensures that business owners receive the support they need to thrive.
Conclusion
The rebound in small business loans is a promising sign of economic recovery. Small business owners, having weathered the storm of the Great Recession, are now reporting better earnings and reinvesting in their ventures. Capital One and other lenders are meeting the increased loan demand by focusing on responsible lending practices and providing support to business owners. By offering a range of loan options and partnering with organizations like the Small Business Administration, lenders are helping businesses access the capital they need to grow and succeed. As the small business landscape continues to evolve, it is crucial for lenders to remain committed to responsible lending practices and to support business owners in making well-informed financial decisions.