Traditional American bank loans are drying up for small businesses – what can they do? | Genetic marks

As if small businesses haven’t had enough to do this year, now there is something else: traditional bank lending is drying up.

This is according to the latest monthly report from the finance company Biz2Credit. The company’s small business loan index, which analyzes the more than 1,000 loan applications each month from small business owners on its lending platform, found that the number of bank-approved applications had significantly decreases.

According to their data, the loan approval percentages of large banks (over $ 10 billion in assets) were 13.3% of applications submitted in November 2020. This represents a drop from the approval rate of 28.1% recorded in November 2019. Small banks were even worse. They approved 18.3% of applications submitted last month, a number well below the 50.5% approval rate recorded a year ago.

“Even though many businesses are operating at a loss right now and need capital, they are discouraged from applying for funding because of the likelihood or rejection as approval rates drop and because there are so many of economic uncertainty caused by the coronavirus “, Biz2Credit CEO Rohit Arora in a report. “Business owners are eagerly awaiting the enactment of a second Paycheck Protection Program (PPP) that would provide forgivable loans to survive the current pandemic outbreak. Without significant federal support, small businesses across the country will be struggling. Many of them will not survive.

Much attention has been paid to the Paycheck Protection Program, which has provided billions in aid to small businesses through the nation’s network of banks and other government-approved lenders. But the PPP program is administered by the Small Business Administration and the loans are guaranteed by the federal government. Which means that the banks that lend this money take little or no risk.

Unfortunately, we now find that when it comes to providing more traditional loans to small businesses, where banks have to assume the risk of non-payment, most lenders seem to have lost their appetites.

Perhaps – like many businesses – you have successfully weathered the challenges of the pandemic and the unprecedented economic downturn this year. Maybe your business finances are strong, you have collateral, and you can prove you can pay off your debt. If so, then you have a much better chance of securing financing from a traditional bank. But for the millions of small businesses whose fortunes have turned otherwise, their prospects have darkened, even though they are not in a precarious situation but still need financing to grow.

So what to do? Where can these companies seek this funding? Credit cards remain a popular, albeit expensive, choice. Online lenders love cabbage and On the bridge can provide short-term liquidity, but at very high interest rates. If you are a merchant, you can get cash advances from Pay Pal, Square or Intuit. Small business administration Loan program under paragraph 7 (a) is a great choice because the loan requirements are less onerous (the government supports these loans through its member banks) and you can get financing for working capital as well as asset purchases. Online markets like Lendio, Biz2Credit and National business capital Connect thousands of small businesses every month to financing resources based on their needs and demographics. And of course, there’s Uncle Steve and Aunt Jane, as long as you’re willing to put up with tough family dinners for years to come.

With the exception of the Section 7 (a) loan program (and your loved ones), all of the above lenders are willing to provide financing for your business because they are willing to take more risk and yours. charge extra for accommodation. Traditional banks, whether large or small, are not built on this model. They are not risk takers. That’s not to say you shouldn’t work hard to build a long-term relationship with your local banker. But these companies want to work with viable, growing, and financially strong customers where they provide capital to grow, not just to survive.

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