Small businesses have a hard time getting a loan from banks. But why is that? Why don’t banks lend to small business? There are several reasons. Find out how to get lenders to lend to your business.
Banks are much more risk adverse
Banks are risk adverse because of the low rates they offer. So by earning less on each loan, the bank has to have more paying loans to make up for one default.
Banks charge low rates on loans
The lowest rates for business loans are at banks, savings and loans, credit unions and the sba. Because rates are low, the bank will make much less interest income from the loan. What can you do about it? Get a business loan that a bank will not approve. Apply below.
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What are other reasons banks do not lend to small business? Banks need strong credit, financial statements and good collateral.
Business owners who do not have a high credit score, strong collateral and strong financial statements will probably not be approved at a bank. As a result, your business needs a lot more funding options. Apply above.
FAQ frequently asked questions on why don’t banks loan to small business?
So why won’t banks lend to small businesses?
Banks, savings and loans and credit unions in general only accept the lowest risk businesses mostly because they offer among the lowest rates in small business lending. Their default rate has to be very low so they can only underwrite the safest and lowest risk customers.
What do banks look for to approve a business loan?
Banks look for excellent credit, collateral and the ability to repay. Cash flow as shown through financial statements and tax returns shows a businesses ability to repay. The collateral often needs to be the type of collateral a bank will accept.
My bank turned me down for a business loan. What are my options for business funding?
It depends on your credit, cash flow and collateral. If your credit is not good, your business may need to get an asset based business loan where the collateral is the basis for approval.
My bank turned my business down for insufficient cash flow even though our business has strong sales. What does that mean?
The bank reviewed your business net income after expenses and decided there isn’t enough income left to pay the new debt. They may have looked at the net income on your bank statements or the cash flow in your business checking account.