Sad but true: Compare these two scenarios, holding everything else–the company, its history, its credit rating, its founders’ credit rating and its balance sheet–constant:

  • Scenario 1: Company goes to the bank in April with business plan output showing they’re going to need a bridge loan to finance an expansion over the summer.
  • Scenario 2: Company goes to the bank on Tuesday needing a bridge loan to meet payroll on Friday.

I’m guessing that you’re guessing right. The company in scenario 1 gets the loan, the other one doesn’t. That’s about 10 times out of 10.

What brings this to mind is the New Intuit Future of Small Business Report-Credit Outlook, released last week, titled Where Small Is Going.

The report, the research, sponsored by Intuit and conducted by Emergent Research, comes up with some important (although not surprising) key points:

  • Community banks and credit unions can be an excellent and accessible source of credit for small businesses that meet their lending criteria. They want the business and are ready to lend.
  • Businesses that can demonstrate the ability to manage assets and cash flow will find credit is still available, although not unlimited.
  • Credit availability will remain tight. Even though community banks and credit unions are looking to expand small business lending, they simply don’t have the asset base to replace the large lenders.
  • The reality is that the smallest of small businesses–those with five employees or less–often will not qualify on paper for business credit. They’ll need to rely more heavily on relationships with their bankers.

While the new report seems to reflect the continuing recession, the major economic problems we’re all aware of, I think we should also recognize that this is pretty much the long-term condition of banking and small business. Banks aren’t supposed to be lending money to small companies without assets, whether or not they have intriguing business plans. Banks are supposed to be safe. It’s the law.

So one of the things you want to build, as you build your business, is your relationship with one or more local banks. Start with a checking account, if that’s all you can get, but try to get a small loan first and get some history with the bank.

And plan ahead as much as you can. You never want to wait until you need the money badly. Talk to the bank early, and it will be much more likely to help. That’s good business for all.

And yes, I know that’s obvious. But we forget. Reminders are good. We’re all pretty busy these days.

Tim BerryTim Berry

Tim Berry is the founder and chairman of Palo Alto Software and Follow him on Twitter @Timberry.