When I think about my small business trying to get a loan from a bank, I’m reminded of Randolph and Mortimer Duke from Trading Places torturing Eddie Murphy and Dan Akroyd’s characters for sport. I imagine myself walking empty-handed out of the bank’s thick front doors while cackling bankers slap their knees at the fun of saying no, yet again, to another small business.

When I first started my business a few years ago, I was not quite so jaded. I walked into my first bank with my perfect credit score and considerable personal savings to find out what kind of line of credit I could get. The first banker said I needed two years of business tax returns and a history of profitability in order to get a line of credit.

When I explained that in fact I was just starting the business, so profitable tax returns would not be possible for the moment, but that in fact my perfect credit score and considerable personal savings, not to mention my brilliant small business idea, should qualify me for a loan, I received a blank look in return.

As if speaking to a small, not-so-bright child, the banker leaned forward in her seat and quietly and patiently explained again that I still needed two years of profitability proved by business tax returns. I swallowed my annoyance and thanked her as I left.

Ok fine, I thought, leaving the bank, there’s about a dozen other banks in my neighborhood that would love to have me as a customer. I happen to know there are approximately 8,600 FDIC-insured banks in this country, surely most of them would want to give me a line of credit.

But as the rest of the day led to four more bank rejections for exactly the same reasons, I started to learn some things. I will now share my insight with you:

Banks do not lend to small businesses. Period.

“Now wait a minute,” you say in response to my cynicism, “What about the Federal Government’s Small Business Administration (SBA) that is lined up and ready to support small businesses like mine? I Googled ‘Small Business Loan’ and the SBA shows up immediately, so that should really help, right?”’

Maybe, but I doubt it. The SBA will also require at least 2 years of financial statements, and really can’t be bothered on loans less than.$150,000. In fact, the program is really designed for large loans up to $2 million.

In addition, although your small business might qualify for an SBA-subsidized loan, the nature of the program actually proves my point that banks do not want to lend to small businesses. Behind the SBA program is a government guaranty to the bank to reimburse it for 75% of the value of the loan in case of a loss. In essence, the government has to bribe banks to lend to small businesses. Without that bribe, er, guaranty, banks won’t do it.

I’m sorry to break it to you this way about banks, and there really is no tooth fairy. I ask any reader out there to write to me and tell me differently. Also, please send me a line of credit application from your bank.

Coming NEXT: “What do banks do?”

I previously wrote that Banks do not lend to small businesses, so some readers may be wondering what, exactly, do banks do?

Let’s approach this by process of elimination:

They don’t make small-business loans. Unless bribed by the SBA through a guaranty of 75% of the loan.

They don’t originate home mortgages. That’s for mortgage banks (currently suffering for this folly.)

They don’t make personal loans. That’s for credit cards companies.

They don’t make auto loans. That’s for specialty finance companies.

What banks do instead of making home mortgages, personal loans, or auto loans, is they purchase pools of mortgages from Wall Street, pools of credit cards from Wall Street, and pools of auto loans from Wall Street, none of which help their local constituents or depositors.

I should point out there is one area in which almost all banks do make loans to local customers: Banks actually lend to local commercial and residential real estate developers. It’s the one area in which they have local knowledge and control, and feel they have an edge over Wall Street’s packaging of mortgage, credit card, and auto loan pools. So if your small business happens to be real-estate related, you should look to your bank for funding. Otherwise, trust me, don’t bother.

There is an interesting side note to the fact that most banks make local real estate development loans. In certain areas, this business has been an extraordinarily profitable and safe place for banks to lend money in the last decade or so. As anyone reading the real estate news can tell you (and that’s just about all of us), however, real estate development just hit a major rocky patch in many high-growth areas of the country.

Randolph and Mortimer Duke, my local bankers, may be soon trading places with the people they previously spurned. It’s not polite to say I told you so and enjoy others’ misfortune, but they might soon wish they had treated small business owners better.

I’d still like to hear from any BizBox reader who disagrees with me and who found a bank that actually works with them. I will be pleasantly surprised.

“Neither a borrower nor a lender be, for loan oft loses both itself and friend”—Polonius to his son Laertes, Hamlet Act 1, Scene 3

As small business owners, we don’t have the luxury of following Polonius’ sage advice to his son, but we can be mindful of best practices when we do borrow money.

As a specialty finance company, Cedarcrest is frequently both a borrower and a lender, and we pay close attention to the mechanics of loan repayment from people and businesses who owe us money.

It matters a great deal to me, for example, if a borrower calls us up in a timely way to say her monthly payment will be 10 days late and she explains the reason why. It indicates the seriousness with which she takes the debt, and makes me inclined to be flexible, if need be, with this month’s payment.

On the other extreme is the borrower who does not return phone calls for a few months. When finally reached he will say, “Oh yeah, business is a little slow, I hope I can get it to you next week?” The non-communicative debtor has already set up an adversarial relationship.

Borrowers always know if their debt will be paid late, and lenders in contrast are frequently the last to know. The way to get flexibility as a small business borrower is to communicate early and often with your lender.

Even the timing of payments within a month matter. It makes a difference whether a loan payment comes on the first day of the month it’s due, or the last day of the month in which it’s due. The little things matter to lenders when deciding how to treat a borrower.

Lenders, whether a bank or a specialty finance company like Cedarcrest, would much rather waive fees and expensive collection efforts to a communicative borrower then to take adversarial action without much knowledge of the borrower’s situation.

Finally, not only should we be mindful of loan repayment signals we give to lenders, but it can make us money as small business owners as well. In the next BizBox entry, I’ll mention a way to get a great rate of return on money through early loan repayment.