Why Is Obtaining a Small Business Loan So Hard?
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Source: LoanNEXUS
Getting a small business loan can be challenging for many entrepreneurs, especially if they are new to the market or have a low credit score. There are several factors that lenders consider when evaluating a loan application, such as the business’s credit history, collateral, income, debt, and capital investment. These factors help lenders assess the risk and profitability of lending to a small business.
Some of the common reasons why small businesses struggle to get a loan are:
– Lack of collateral: Collateral is an asset that the borrower pledges to the lender as a security for the loan. If the borrower fails to repay the loan, the lender can seize and sell the collateral to recover their money. Many small businesses do not have enough collateral to secure a loan, or they may not want to risk losing their personal property if they default on the loan.
– Poor or insufficient credit: Credit is a measure of how well a borrower has managed their past and current debts. Lenders check both the personal and business credit reports and scores of the borrower to determine their creditworthiness. A low credit score or a limited credit history can indicate that the borrower is not reliable or responsible with their finances, and may not be able to repay the loan on time.
