As the economy continues to improve, many small business owners are more optimistic about the future. Established businesses as well as successful startups, nonetheless, are often finding it harder and harder to obtain small business loans from traditional banks. According to some estimates, since 2008, overall small business lending from traditional banks has decreased across the board. Entrepreneurs with excellent credit and cash reserves in the bank are frequently being turned down due to the traditional banks reluctance to loan to smaller businesses instead of larger corporations.
Small business loans started to become harder to obtain after the recession in 2009. Banks, nervous after massive losses suffered during the economic downturn, increased requirements for small business loans, making it harder than ever for startups without years of history and lots of capital. As recently as October 2012, traditional banks only approved 14.8% of all small business applications.
Businesses seeking loans for less than $100,000 have been particularly hard hit, an amount typically needed to grow a business in its early stages. Entrepreneurs (many with excellent credit scores) describe being turned down by numerous banks before ultimately giving up or turning to alternative lenders. Discouraged, many small business owners don’t even bother submitting an application to traditional banks for fear of being declined.
Some small business owners turn to the Small Business Administration (SBA) for assistance, but have misconceptions about what the SBA actually can accomplish for them. The SBA does not lend money, but guarantees small business loans made by SBA lenders like traditional banks. In recent years, SBA-backed loans have become even more difficult to obtain; data shows that SBA loans actually declined from 2011 to 2012.
Another surprise occurs for many small business owners who assume that because they have good credit and money in the bank they will easily be approved. Most lenders look for excellent personal credit in addition to a strong history of business credit before approving loans. Other factors like debt-to-credit ratio, gross income and the number of loan inquiries can also impact an entrepreneur’s likelihood of obtaining a business loan.
This article was written by La Mancha Sims from Business2Community and was legally licensed through the NewsCred publisher network.