With banks raising lending standards, small business owners in Michigan are having a hard time getting loans to start new ventures or expand current ones.


With the University as its economic stronghold, though, the loan market for small business owners in Ann Arbor remains one of the most promising in the state, lending experts say.

Down from 3,297 in 2007, 2,166 small business loans were approved in Michigan during the 2008 fiscal year, according to the U.S. Small Business Administration. Allen Cook, the assistant district director of the SBA’s Lender Relations Division for the Detroit area, said statewide loan approvals for Michigan’s 850,000 small business owners have declined even more in the past month.

Cook said the 34 percent decline has to do with the anxiety surrounding the proposed $700 billion financial bailout, combined with banks ramping up credit standards.

“Things are really kind of uncertain, and that uncertainty means less availability of funds,” he said. “It doesn’t mean they aren’t out there, it just means that it’s more of a struggle to get it and that the credit criteria has to be that much stronger.”

But even though most banks are keeping a closer eye on each loan, Cook said Ann Arbor’s strong economy means it’s still a place where small-business loans are likely to be approved.

“Ann Arbor tends to be one of the more vibrant economic areas of the state,” Cook said. “The University is a strong anchor for the whole area, and generally it has fared better than other parts of the state.”

Michael Rogers, vice president of communications for the Small Business Association of Michigan, said Ann Arbor has remained strong because the University is a source of new business ideas.

“There are a lot of opportunities to spin off businesses based on the research that’s done at the University,” he said.

Despite Ann Arbor’s success, Rogers said declining access to loans and credit beginning in 2003 has landed most of Michigan’s small-business owners in one of the worst credit markets to date.

According to the latest SBAM survey of Michigan small-business owners, access to credit for the purpose of business expansion is the lowest it has been in 14 years.

About 38 percent of Michigan’s small-business owners rated their access to credit favorably, according to the survey. In 2001, 71 percent said they had favorable access to credit, Rogers said.

Michigan is suffering more than most states, Rogers said, but the national market largely dictates lending criteria. So even in Ann Arbor, small businesses are being held to tougher credit standards, he said.

At the Bank of Ann Arbor, that means higher interest rates, additional collateral and shorter borrowing periods for more recently approved business loans, said Larry Grace, the bank’s first vice president of commercial lending.

For business owners who can afford to take on those extra costs, Grace said, Bank of Ann Arbor has continued to approve about the same number of small-business loans at roughly the same rate as compared to recent years.

Ryan Marx, a co-owner of Labryinth Comics and Games, said those tougher standards kept him from obtaining a small-business loan when he and his business partners opened the State Street store last year.

Facing start-up costs of about $75,000, Marx said he was denied small-business loans from the SBA and a local investment group because the store hadn’t opened yet, and he didn’t have a high enough credit score to secure the loan on his own.

“They totally dropped the ball on us,” Marx said. “So we got a personal loan and did it that way.”

With a $15,000 personal loan in hand, Marx said he and the other owners found ways to make up for the $60,000 shortfall by cutting costs and doing most of their own renovations at the State Street location.

The extra work delayed the store’s opening, and the smaller loan meant they had less money to buy their initial inventory, but now that business is up and running, Marx said the preliminary slowdown has been beneficial.

“In light of the last few weeks’ economic troubles, I’m a lot happier that I’m not beholden to a lending institution for a $75,000 loan,” he said.

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