If you are looking for a small business loan – you had better clean up your balance sheet! According to a recent survey, the turn-down rate varies greatly between institutions but there is one common factor: lenders want good looking financials. In this tough credit environment, there is a long line at the bank but many are turned away empty handed. There are other options for small businesses looking for working capital.  There are smaller, community banks which are often federally funded and interested in building relationships with local businesses. There are also other commercial financing sources, such as asset based lending, ready and willing to provide needed capital for your business. The message is clear – wherever you go for a business loan, seeking business debt restructuring or other turnaround management solutions before you apply can provide you with a cleaner balance sheet and a better shot at obtaining a competitively priced line of credit.  

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Source: Forbes, July 6 2012, by Carol Tice

We all know it’s still tough out there to get a bank loan as a small business, particularly a startup. Turns out, it’s a lot tougher to get a loan approved at a select few of the nation’s largest banks than it is in general.

A new study of 1,000 rejected small-business loan applications conducted by credit marketplace Biz2Credit found the turn-down rate varies greatly between institutions.

Overall, the commercial financing environment still looks dicey, with the most recent National Federation of Independent Business optimism survey showing more entrepreneurs with a negative outlook on obtaining credit.

Which banks rejected the most loan applications in the survey? Here’s the top five:

Bank of America – 13.5%

JP Morgan Chase – 11.6%

Wells Fargo – 11.2%

TD Bank – 2.9%

PNC Bank – 2.3%

The top three here are really of most interest, as the percent of rejections drops off steeply from there.

The top ranking of BofA is a touch ironic, given the statements the bank has recently made about its commitment to making these loans and to hiring more small business loan officers. In fact, BofA’s lending to small businesses rose 6 percent in the first quarter compared to the same time last year, and the bank approved more than $100 million in small-business loans. Clearly, somebody is getting a small-business loan.

The reject rate at BofA, JP Morgan and Wells Fargo likely is in part a result of entrepreneurs smelling blood in the water. Loans are getting made at these big banks, so more owners are applying there.

But the survey is certainly a reminder that it’s worth building relationships with your local, smaller community bank. Many of these institutions received federal funding to help spur more local, small-business lending, but fewer entrepreneurs take a look at local institutions.

One thing’s clear — if you’re looking for a loan for your business right now, have your financials cleaned up and looking as sweet as possible. Then, don’t be surprised if you need to apply to more than one bank to find a lender willing to help.

Finally, make sure your business can afford to take on this debt — interest rates for small-business loans aren’t cheap right now.