Small Business Lending and Its Challenges

Nowadays it’s almost impossible to see anyone who doesn’t have any credit problems. In fact, many people are looking for personal loans for credit card debt consolidation as a remedy for their financial woes. This issue is also true in business as it’s even hard to find companies with no outstanding loans. The truth is that lending is part of every business.

Ironically, many companies are still apprehensive to apply even for small-business loans of $25,000 or less. This is because they are afraid their applications will only be rejected. There is nothing wrong if you don’t get approved for a small business loan, but your efforts may end up useless.

What’s the Reason Lenders are Being so Strict?

Every lender has its reason why it approves or rejects a loan application even if the loan is not that significant. However, there is something behind those reasons, and it seems bewildering since irony exists in the world of lending.

Some lending institutions offer small-business loans, but small-business owners are pushed away by big businesses in terms of getting prioritized for loan approval. In addition, lenders don’t seem to be focusing on small business lending too much.

If you analyze the market, there are abundant of qualified loan applications. When it comes to funding, there seems to be no problem as most lenders are heavily investing in large-scale lending. Therefore, it’s not the market that pushed lenders to slow down when it comes to small business lending.

The real score is that lenders have become very conservative in terms of small-business loan approval since the 2008 economic crisis which was propelled by sub-prime mortgage lending. Because of this, lenders are now apprehensive and less aggressive in offering small-business loans.

Here are 4 challenges borrowers face when seeking money for small business.

1. Competition

Competition is always a challenge not only for lenders but also for all companies. In small business lending, borrowers are not only confined to banks. There are now many players coming in, and most of them are non-bank lending institutions.

As a result, old players are struggling to keep their existing market. Although there are a lot of qualified borrowers out there, the number of small business lending institutions is also growing fast. In just a blink of an eye, those who get disapproved by one lender are instantly approved by another lender.

2. Laws and Regulations

Laws and regulations are also a factor that makes life harder for lenders and small-business loan borrowers. Perhaps, this is because of fear of another economic crisis. Because of laws and regulations today, it’s not easy to lend and borrow; moreover, some laws and regulations are simply difficult to comply.

Aside from that, lending companies that operate nationwide are challenged by the different laws and regulations among states as each state has its own unique laws.

3. Technology

To survive, lenders should keep up with the latest in technology. In the past, it would take time before an office machine could process your loan application. Nowadays, there are apps anyone can use to borrow some money. Verification is done by AI, so you can now complete your transaction in just a matter of hours.

4. Trust

Trust is another issue that’s difficult to address especially today in which phishing, scamming, and hacking are commonplace. Nowadays, it’s hard to trust and build trust.

Small business lending remains promising, but there is optimism behind all such challenges as the industry has grown since 2008. Furthermore, the growing number of players is a living testimony that there is still a good prospect for small business lending.