If you’re wondering about how small business view bank loans, this infographic from Chicago, Illinois-based credit card processing fee comparison engine FeeFighters shows that only 42-percent of small businesses see bank loans as a viable financing option.
The number is quite similar to a recent Pepperdine University’s Graziadio School of Business and Management study, that shows approximately 48-percent of the 1,221 privately-held businesses that responded to its survey target bank loans as a source of funding:
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.
Harper says that friends and family remains the most common source of funding for small business owners, while personal loans and even non-bank loans such as merchant case advances are common.
If you need to select credit cards for business use, Harper recommends that you should look for reasonable interest rates, access to an easy online interface so you remember to pay your bills, get good value of the rewards points, and great customer service. “Business tend to have more complicated issues with their cards (fraud alerts, payment terms) than consumers, good customer service is more important,” he adds.