While securing a small business loan has become easier since the depths of the Great Recession, lending to small businesses has not recovered alongside the economy at large.
Newly released federal data recently depicted the somewhat improving, but still mostly underwhelming, state of lending to small businesses. Of particular note are the stringent credit standards imposed on borrowers by larger financial institutions, meaning an alternative lender would represent a more flexible partner for small firms.
Low availability stops businesses from applying altogether
Eighteen percent of business owners said tight funding availability was their greatest challenge to begin 2014, according to the 2014 Joint Small Business Credit Survey published by the Federal Reserve Banks of Atlanta, Cleveland, New York, and Philadelphia. It was the second-most cited challenge, and received the same portion of the vote as uneven cash flow.
Tight lending standards have increasingly pushed small businesses to the fringe of large institutional lending. While 35 percent of all businesses applied to a large national bank, 31 percent were approved. That’s compared to the 34 percent that applied to a small or regional bank, 59 percent of whom were approved.
The expected rate of denial has forced small businesses to reconsider even trying to apply for funds, as the survey uncovered a large gap between the biggest businesses and the smallest. Just 18 percent of microbusinesses (those with revenues under $250,000) applied for a loan, and just 30 percent of small businesses (those with revenues up to $1 million). Meanwhile, 58 percent of commercial firms (those with revenues exceeding $10 million) sought financing.
The bank noted this was despite most owners being prepared and knowledgeable about the financing process.
Overall, 40 percent of those applying for funds sought the money to expand their business, and small business owners in a jam regarding financing availability may do better to ignore large institutions altogether and work with an alternative lender, like National Funding, that is able to meet and provide for their needs seamlessly.