Can you believe that 50% of first year businesses do not make it to the next year? Did you know that 95% of businesses fail within 5 years of being established? It is because of these percentages that lenders and other financial organizations consider many small businesses to be ‘high risk’.
High risk Tips to Maintain Profitable Small Business with Little Investment businesses (and even some non-risk businesses) have an extremely difficult time finding and obtaining business credit. So, why are lenders so afraid to lend out funding to start-up and current businesses?
Let’s take a look the real side of small business access to credit….
Uncertain Economy
An uncertain economy has a lot to do with the ability of a small business access to credit. During a recession, or even a falling economy, people are not spending money. Therefore, they are not going to small businesses for materials like they do when the economy is good.
Small businesses are not getting near enough business to stay afloat and lenders are perfectly aware of it. Lenders are skeptical to lend out money in fear of never seeing repayment.
Outstanding Loans And Credit Card Balances
This goes hand in hand with the uncertain economy. More business owners default on a loan during a rough economy. Lenders have hundreds of thousands of dollars in back loans that they are unable to provide more opportunities for small business access to credit.
If they are not paid for the capital they have lent out, they could risk going out of business themselves. This is especially true for private organizations that need the paid interest rates on loans and credit cards to keep them going.
Lending Standards Restrict Small Business Access To Credit
The lending standards that the government places on small business loans and credit cards have a lot to do with small business access to credit. Tighter regulations for small business loans means less and less business owners will qualify for the credit they need to keep their businesses in business.
Stricter regulations will help the lenders keep the money in house, but they will also increase the unemployment rates as small businesses will be going out of business. It is critical that small business access to credit be open or we could see a drastic decrease in the amount of business opportunities available to people.
All of these factors contribute to why lenders are not offering business credit to businesses. Small business access to credit is becoming smaller and smaller and smaller. So, if you are considering starting your own business I want you to understand the ‘Why’ so you feel more confident when you begin your quest to obtain credit for your business.