Do you own a small business? If yes, then you know too well how hard it can be to stay afloat financially. You may have considered taking out a loan from a big bank to give your business the boost it needs, says Samir H Bhatt, but are overwhelmed by the application process and uncertain whether they will even approve your loan request. Understandably so – seeking financing is always risky – no matter if it is after personal assets or a loan from an institutional lender like a big bank. But before making any decisions about what kind of financial assistance you should pursue for your small business, let’s break down the truth behind big banks and their loans: what are their lending products, what size businesses do banking institutions typically lend to, why should/shouldn’t you take out one of these loans and more?
Samir H Bhatt Reveals The Truth Behind Small Businesses & Big Bank Loans
Small businesses are the backbone of many economies, providing employment and contributing to innovation, says Samir H Bhatt. Unfortunately, small business owners often find it difficult to secure loans from big banks, which can leave them in a precarious financial situation. But why is this the case?
It’s because big banks tend to only lend to larger companies with good credit scores. This means that small business owners may not get approved for a loan even if they have a viable business plan. Banks prefer to lend money to firms that offer higher returns and less risk; smaller businesses are seen as too risky by most traditional lenders.
In addition, banks require entrepreneurs to provide collateral for their loans and often ask for personal guarantees from the owner or other investors before approving the loan. According to Samir H Bhatt, this means that small business owners are often unable to meet the stringent requirements of traditional lenders and may be forced to look elsewhere for financing.
Data from the Federal Reserve System back up this point; according to their 2018 Small Business Credit Survey, only 7% of loans requested by businesses with less than $100,000 in annual revenue were approved by large banks. Additionally, small firms reported they had to wait for an average of 25 days longer than larger firms before receiving funding after going through a loan application process.
One example is Robert O’Connor’s experience applying for a loan for his startup restaurant in California. Robert was unable to secure bank funding due to his lack of personal collateral and poor credit rating despite presenting a viable business plan. He was eventually able to get funding through an online lender, but at a much higher rate than what he would have received from traditional banks.
Samir H Bhatt’s Concluding Thoughts
It is clear, as per Samir H Bhatt, that big banks are not always the best option for small businesses seeking loans. Entrepreneurs may find more success with alternative lenders or other financing sources such as crowdfunding campaigns and angel investors. However, since most of these options involve riskier investments, it is important for small business owners to assess their financial situation carefully before making any major decisions. By understanding the challenges behind securing bank financing and exploring alternative sources of capital, entrepreneurs can ensure they’re on a firm financial footing and maximize their chances of success in the long run.