Small businesses are still finding it difficult to receive loans and it all started with the financial crisis of 2008. It is true that large banks claim extending small business loans, but in reality the case is different. Biz2Credit findings show that 9 out of 10 applicants for loans are turned down by big banks. Also, since October 2011, total number of loans made to small businesses by banks has fallen 17%.
It is not easy to understand why banks are not lending. But what is perhaps evident is banks haven’t been able to recover from the damages caused by 2008 credit crunch. Some banks closed down and many of them could survive just because of TARP. Among the many that still exist, some have made risky investments in Europe and some are facing bad U.S. mortgages.
So, the difficulty faced by banks persists and they also know that in case of a second crisis they can no longer depend on a program similar to the Troubled Asset Relief Program (TARP). TARP has its own drawbacks. So, banks have become extremely cautious and are not in a mood to take on new lending risks. Moreover, they think that small businesses are more prone to default compared to big corporate and they may not be profitable to lend loans.
But this feeling is not the same everywhere around. There are credit unions and private lenders on the forefront and willing to make loans to small business owners. Such lenders believe that small businesses are innovative and have the potential to grow and earn profits. Loan approvals of credit unions have gone up recently.
There is the common sense that small businesses being the engines of growth, bank lending should kick-start again. Till then, small businesses should resort to alternatives like credit unions and other traditional methods to receive funding.
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 email@example.com.