Keeping the rejection rate into consideration, small business lending institutions have adopted a take it or leave it attitude towards ‘small business loans’. A recent survey named ‘The bank-funded Business Monitor’ studied the treatment received by small businesses as they ask for business loans from banks.
Last year around 28 percent of loans were declined approval during processing of the application itself. An equal percentage of applicants were denied loans at the end of the application process. This includes even amended applications and as result loan demand of borrowers has been reduced. In 2007, only 4 percent of business loan applications were treated in a similar way.
Small business owners no longer have confidence towards traditional lending institutions as revealed while studying 5000 small businesses. But 40 percent entrepreneurs surveyed still believe in the traditional methods of funding. But this is a straight 70 % decline in comparison to entrepreneurs who applied one year ago. Reasons given for rejection are not considered satisfactory enough by small businesses owners.
Lack of relationship between traditional lenders and small business customers is another reason for the slowdown of small business lending. Enterprises without proper track record are left out while established borrowers are funded promptly. So, when there is news of money flow then people start to doubt its relevance as they feel it is true for a select group of borrowers.
In the current climate, banks are unwilling to grant loans to businesses that are new customers. But with support received from SBA, lenders are found to loosen their strap a bit. This is good news for Small business owners who seek financing. Alternative financing too exists for businesses. The alternative methods of funding makes it easier for enterprises to find capital if they have a good track record and business credit score.
This article was submitted by Raj Tulshan, Director of Business Development of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to