If you are a small business owner and having trouble getting credit from a bank for your business, you’re not alone. A new study by the National Federation of Independent Business (NFIB) shows that only 1/3 of small business owners are actually able to receive the credit their companies need.
One reason your corporation may not have been able to get a loan or line of credit is the size. The smaller your business, the less likely it is to be able to receive the financial support it needs from the bank. The NFIB survey revealed that of businesses with 50 to 250 workers, over 50% have a business loan while roughly 65% have a line of credit, compared to the almost 16% of businesses with one or fewer employees that have a loan or the roughly 34% that have a line of credit.
Lending to small businesses is riskier and more expensive for banks than letting bigger companies borrow money because the default risk is higher for small businesses as their failure rates are greater than big corporations’ rates. This is because changes in the business world and market have a bigger impact on the smaller companies than the larger corporations. Banks also assess loans to smaller businesses as unworthy endeavors because they are more expensive. Big companies looking for a business loan are usually looking to borrow a large sum of money and profit margins on larger loans are higher than they are on smaller loans, which is typically what a small business is looking to obtain. This leads to banks focusing more on bigger customers and corporations and being more willing to lend to them.
However, there are some steps you can take to make your small business more appealable to banks and increase your chance to receive a loan or line of credit.
1. Research Banks: Knowing which banks specialize in business loans and in what industry lets you target banks more likely to give your small business a loan.
2. Network: Building good relationships with your accountant and other advisors establishes a group of people you can look to for advice and introductions. Using a local bank in the community will also let you connect with the important decision makers at that bank and develop a relationship with them.
3. Get Your Finances in Order: Organizing your financial documentation will make your loan application process much easier and smoother. Understanding your credit report and being mindful of your credit score will also ensure there are no surprises when the bank considers your application.
4. Have a Plan: Knowing what you will do with the money if you receive the loan, having cash flow projections based on the impact of this money, showing how the loan will increase your company’s growth, and providing a contingency plan in case the loan doesn’t do what you initially planned it to in your company all will show the bank responsibility and can only help your chances of obtaining a loan or line of credit.
Are you struggling to obtain a bank loan for your small business? Don’t worry – there are options! Invoice factoring is a smart funding solution for small businesses. Whether you are a small business that works in the medical industry, or virtually any industry, as long as you have unpaid invoices – you can improve your cash flow today by factoring receivables. Rates are low and there is no debt added to your balance sheet. Not to mention, bad credit or past financial problems are okay. Approval is based on the credit of your customers – not your company. We have connections with a nationwide network of business factors who can get your small business the cash you need. Contact us to learn more.