Most people who start a small business need to apply for some type of financing. Those who want to expand their business often need to apply for a loan as well. Unfortunately, small business loans can be difficult to get no matter what the reason for needing them. It’s so difficult, in fact, that 82 percent of 10,000 small business owners in a recent study by On-Deck reported they had received a denial from the bank they applied to for small business loans. We explore some of the reasons below.

Small Business Loans Are Risky for Lenders

Many business lenders are simply unwilling to take the risk of lending a substantial amount of money to a new and unproven business. Another factor is that underwriting costs can be just as much for a smaller loan of under $50,000 as they are for larger loan requests from larger and better-established businesses. Even when a small business owner does receive approval for a loan, it’s often at a higher rate of interest and for a shorter term than larger businesses.

The Problem of No Collateral

It’s frustrating for small business owners who have established excellent credit and taken the time to write a detailed business plan have lenders turn down their application for small business loans anyway. From a lender’s point of view, that doesn’t matter so much as the fact that you might not have anything valuable to put up for collateral in case you default on the loan.

A Credit Union or Alternative Lender Might Be a Better Solution

Because credit unions are smaller than banks and member-owned, a new small business owner might have a better chance of loan approval by applying to one. This is especially true if the new business will be in the same community since credit unions exist to support the local community. If that doesn’t work, it’s worth looking into alternative financing.

Integrity Financial Capital may be able to offer you a small business loan. Please contact us today to learn more.