Having trouble getting financing from a bank? You’re not alone. So far in 2015, big banks have approved only 21.7% of small business loans. Despite a recovering economy and an increasing demand for small business credit, banks have become less and less inclined to lend to small businesses.
But why? The answer isn’t as simple as low credit scores. While it’s true that small business owner credit scores are still suffering from the effects of the Recession, other factors are at play as to why banks are suddenly shunning small to medium sized businesses from their portfolios. Let’s take a look at some of them:
Riskier: Small businesses are riskier lending propositions than larger businesses for a variety reasons. For one, small businesses are more sensitive to the ebbs and flows of the economy. Because big businesses are generally more self-sustainable than small ones, larger businesses can weather a dip in the economy. However, any prolonged economic downturn can have lasting consequences on a small business and may even cause them to default on a loan.
Decline of community banks: Historically, community banks have always been more willing to give microloans (generally loans of $50k or less), the amount that small businesses often seek. However, many of these banks have either been consolidated by big banks or have closed completely. According to the Federal Reserve Bank of Richmond, the number of community banks dropped 41% between 2007 and 2013, a bad sign for small business owners looking for loans.
Not as profitable for banks: Perhaps the biggest reason bank lending to small businesses has slowed down is that it’s just simply not as profitable for banks as it used to be. Lending to small businesses in the lower dollar range is too costly and risky for banks. For instance, the cost to process a $50k loan is comparable to a $500k loan, and with 51% of small business owners looking for loans below $100k, you can see the problem.
So with banks not lending to small businesses the way they used to, where can owners turn for small business credit?
We Can Help
We specialize working with small businesses by partnering with companies that provide lending to businesses like yours. Whether a restaurant owner is in the market for a quick $25k or a beauty salon owner wants $15k to cover sudden expenses, we can help.
What we can offer is different from a bank in that we completely eliminate the mountain of paperwork, long waiting times, and stringent payback policies. Bad credit or low credit score is not a problem. Whether it’s our Merchant Cash Advance or Business Loan, these financing programs are an easy and fast solution for small business owners looking for credit.
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