Why Are Banks No Longer Lending To Small Businesses?

September 30, 2015 / Reading: 4 minutes



Small business lending has changed dramatically over the last few years. The times of going down to the community bank and instantly getting a small business loan are all but gone. Largely, this is due to banks being bought out by large corporations and no longer having a personal relationship with their customers. So, why are banks no longer lending to small businesses?

Economic times are driving banks reluctance to lend to small businesses. The recession hit even the largest businesses hard. Stories about GM close to bankruptcy and needing the US government to bail them out shook lenders faith in businesses. Small businesses are feeling the fallout from the risky shoddy business practices of these large corporations.

Regulation is one big factor

After the national bailouts, regulation on banks was increased. This caused the closing of many small community banks. In my town, we had two different community bank chains go under. The remaining banks are being even more cautious with their depositors’ money.

Banks are making less on small business loans

Interest rates have stayed at record lows for over a decade now. This is great for borrowers because they pay less to get a loan. But, for banks that means they make less on each loan. This makes them reluctant to issue small loans especially to newly established small businesses.



When you consider these factors, it makes some business sense for banks to be reluctant to lend to small businesses. But, this doesn’t help the small business owner or potential entrepreneur. They still need startup capital and money to fund their operating costs. It is still possible for small business owners to get the funding they need. They just need to change how they go about looking for funding.

What about alternatives?

The beauty of the free market is that when a need presents itself there will be a business open up to fill the need. This gave rise to options for non-bank small business lending. They are not deterred by lower interest rates because they don’t have the overhead of traditional banks. They don’t have the cost of running a large number of branches.

These non-bank small business lenders are offering the same products as traditional banks. Small business owners are able to get term loans at the same or near the same interest rates. Small business owners are also able to get short term loans, accounts receivable funding, emergency funds, and more.

Who can small businesses turn to?

Fundivo is one potential option. Even if you have been turned down by a bank, services like Fundivo can often get Small Businesses the financing they need to grow their small business. Additionally, by connecting small businesses with a network of pre-screened lenders, Fundivo makes the process of finding the ideal loan that allows small business to grow simple and straightforward.

There are many advantages to using Fundivo over traditional bank loans.

  • We don’t use hidden fees. At Fundivo, we strive to be very transparent about any potential fees connected to their loans.
  • We offer free consultation with a small business specialist.
  • We take the time to make sure you understand everything about your loan. This includes terms and rates. We work to provide the funding small businesses need at the lowest rates possible.
  • Unlike many brokers, we do not use high pressure sales tactics, there is no point in taking out a loan you do not need.
  • We negotiate with lenders to find the funding you need quickly. This helps to get you the funding you need with very little hassle.

All of the Fundivo advantages add up to one thing for small business owners: You are able to get the money you need to run your business easily, seamlessly, and without dealing with the problems that come from most major brokers.

Conclusion

It is true that traditional banks are no longer lending to small businesses as they have in the past. They may have good reasons for this such as the recession, lower profit on each loan, and a desire to reduce risk to their depositors’. This does not mean that small businesses are doomed. Using non-bank based options such as Fundivo allows small business owners to still get the financial funding that they need.