Reasons Why Banks Don’t Lend to Small Businesses

As if starting up a business is not hard enough, trying to get the money to get the business up and going is even harder. Banks these days just do not want to lend money to small businesses especially start up, but can you blame them, lending money to a startup company can be risky. It’s not just startup companies that banks won’t lend to but also small businesses at any stage of their business. Besides small businesses being too risky, banks have many other reason for not wanting to lend them money.

Reason 1- Many bankers will not give out small business loans because they will not make a bonus on them. Although this may seem selfish, it is just the way banks work. If you are a small business you are more risky which means less money is lent out making the bonus on the small amount smaller. Plus if you end up being unable to pay it back then they lose what bonus they may have had.

Reason 2- Banks have a hard time being optimistic about getting paid back on a loan because the economy is not great and they do not have the time or money themselves to monitor all the small business that could of potentially borrowed money. It is easier for banks to lend money to big businesses because they are lending more to one entity so they have fewer people to monitor.

Reason 3- If your business is in the service industry it is even harder for banks to justify giving you a small business loan. Their justification you are not providing a loan for a product but for someone’s brain and how do you put a value on a brain.

Although these reasons may seemed unfair that is just the way the banks think. If they are not going to make money off of you they do not want to have anything to do with you. So if you are a small business looking to get a small business loan it is best to find an alternate form of lending, because most likely a bank is just going to tell you no and consider you too risky.

 

Source; http://spendmatters.com/tfmatters/why-banks-dont-lend-to-small-business-part-i/