News & Tips

Why Is Obtaining a Small Business Loan So Hard?


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.

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March 27, 2024 |

Popular Types of Small Business Financing

smallbusinessblog | LoanNEXUS

Source: LoanNEXUS

There are different types of financing for small businesses, depending on their needs, qualifications and preferences. According to the Library of Congress, financing for small business can be classified into two main categories: equity financing and debt financing. Equity financing is funding given in exchange for partial ownership and future profits, while debt financing is money that must be repaid, usually with interest.

Some of the most common types of debt financing for small businesses are:

Term loans: These are loans that are repaid in regular installments over a fixed period of time. Term loans can be obtained from banks, credit unions or online lenders, and can have low interest rates and competitive terms for well-qualified borrowers.

SBA loans: These are loans that are guaranteed by the U.S. Small Business Administration (SBA), which reduces the risk for lenders and makes it easier for small businesses to access capital. SBA loans can be used for various purposes, such as working capital, expansion, equipment or real estate. SBA loans have low interest rates and long repayment terms, but they also have strict eligibility requirements and a lengthy application process.

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May 28, 2023 |
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