[Infographic] The Truth Behind Small Business Lending
According to FeeFighters CEO and co-founder Sean Harper, there are a few reasons why small business owners find it difficult to obtain a bank loan:
- Evaluating small business credit is very difficult - there does not exist a reliable business credit score.
- With the exception of credit cards, business loans are now sold mainly face-to-face and also involve an underwriter. Doing all that work is pretty expensive, the cost of selling and underwriting a loan to a small business is almost as high as that of selling and underwriting a loan to a large business. But the loans are much smaller and generate less revenue, so it's not that profitable for the bank, so they don't have a good incentive to lend to small businesses.
- Community banks used to lend to small local businesses. There are many fewer community banks now than there were 10 or 20 years ago, so therefore, fewer loans to small businesses.
Daniel Goh is the founder and chief editor of Young | Upstarts, as well as an F&B entrepreneur. Daniel has a background in public relations, and is interested in issues in entrepreneurship, small business, marketing, public relations and the online space. He can be reached at daniel [at] youngupstarts [dot] com.