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04 29 2013

04 29 2013

Less Bank Borrowing Means More Demand for Small Business Lenders

Banks are seeing the slowest growth in outstanding loans of the past two years, indicating fewer businesses are borrowing from large financial institutions. The causes behind the trend may be more complex than just a reluctance to borrow, especially in regard to small business.

According to Emily Chasan of the Wall Street Journal, it takes time and money for banks to evaluate small business credit history, which may give banks an incentive to go after the big fish instead. However, while some may be hesitant to borrow, especially from banks, it’s likely small businesses will continue to search for financing.

“We certainly think demand for borrowing is likely to pick up,” Scott Hoyt, senior director for consumer economics at Moodys Analytics, told Fox Business.

Restrictive Lending

The sentiment among small business owners is that banks are chasing the same low-risk corporate clients causing the total number of loans to fall.  This perception has led many frustrated small businesses to explore financing options outside banks, such as merchant cash advances, equipment leasing, or other alternative cash solutions that require less collateral and can be obtained in a short period of time.  A recent Bloomberg GDP survey supports this notion. Despite sluggish overall GDP growth, recent figures estimate consumer spending climbed to a two year high.

Consumer spending accounts for 70 percent of the U.S. economy, according to the same Bloomberg survey.

“Banks say they’re loosening (lending) standards,” Hoyt said, “but it appears that’s happening for higher quality borrowers.”

Despite this perception, only 7 percent of banks said they loosened restrictions for large and mid-size companies in a January survey, which suggests smaller firms will have an even tougher time.

For many small business owners, like Dan Horn, chief executive of housing developer Palm Communities, the loan process has become too much of a hassle.

“We’re getting loans, but the documentation has doubled,” Horn told The Wall Street Journal. “The underwriting has gotten horrendous.

Small businesses in need of financing that don’t have the time or patience to deal with stringent bank lending procedures should consider consulting with National Funding.

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