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Why Small Business Loans from Banks are on a Decline

With today’s economic downturn, everybody is looking for ways to survive – and this includes big banks. These banks are looking for ways to streamline their operations, concentrating on more profitable lines of business and letting go of others. Sadly, small business loans are part of the cut. It is admittedly harder for a small business owner to get funding from a bank nowadays.

Why is that? Here are some reasons:

  • Level of risk. Banks consider small businesses as presenting a greater risk. Banks are now stricter in evaluating potential loan clients and would prefer extending loans to bigger and more established companies, which have a lower risk of loan default.
  • Mergers. Banks also look towards more efficiency by merging with other banks and by absorbing community banks. Community banks are more “small business friendly” than traditional banking institutions.
  • More cost, less profit. For banks, the profits presented by small loans are not attractive. Generally, small loans cost the same to process than bigger loans but with a smaller profit margin.
  • Increased regulations. Legal restrictions have also been placed on loans, where banks are encouraged to provide loans to those in their community and discouraged to join in loan participations in different communities. This means that small businesses outside of the bank’s natural market area are more likely to be denied a loan application.
  • Insufficient credit history or collateral. Small businesses that are just getting on their feet often cannot present enough collateral since they still have yet to acquire substantial equipment and property. And since these businesses are owned by budding entrepreneurs who still have to prove themselves or who are starting over, the poor credit history or insufficient credit history will serve as another strike against the small business loan applicant.

How Small Businesses can Get Help With Funding

If you are a small business looking for some working capital, traditional bank loans may not be the answer for you. This is where you can turn to alternative sources to get your business up and running. My Hard Money Lenders provides you access to lenders that can extend a business line of credit or a business cash advance for your needs.


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