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Negative Trends: Why Lending May Not Pick Up In 2010

Small business owners expecting an easier time getting a loan or credit line in 2010 should watch out for two words: Negative trends.

Bankers look at a business’s past two years of financial statements when evaluating credit applicants. The average business owner walking in with financials from 2008 and 2009 simply doesn’t look like a good credit risk.

That’s why Tony Wilkinson doesn’t expect conventional credit to ease until the beginning of 2011, when borrowers can prove that they’ve hit bottom and have begun to recover. Wilkinson is president and CEO of the National Association of Government Guaranteed Lenders, the trade group representing SBA lenders. Here’s how he put it in an interview today:

The typical small business has a 25% to 35% decline in revenue. The profit they made in 2008 is probably gone. [They hit] break even if they’re lucky. Small businesses are walking in with financial statements that show negative trends.

Before we get back to a truly normal credit environment for small business, we’re going to be in the first quarter 2011.

That’s part of why there has been stronger demand for SBA-guaranteed loans, and Wilkinson expects that to continue through next year.

Not every business has negative trends. Some regions and industries are healthier than others. Some companies managed to sustain their earlier level of sales, profits, or even growth despite the recession. But 2008 and 2009 have been bad and worse years for many firms. Until they have a better one in the books, they shouldn’t expect to find bankers eager to make loans.

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