A recent study from the Institute for Local Self-Reliance has turned up some troubling results: American banks are lending far more money, far more often to big businesses than to small businesses. At the end of 2012, just as many businesses were starting to see faint glimmers of recovery, loans to big businesses had climbed by 36% from the year 2000. Small business and micro business loans dropped during the same 12-year period by 14% and 33%, respectively.
The Move to Big Business is Somewhat Nonsensical
Of the nearly six million employer firms in the United States, 99.7% are made up of fewer than 500 employees. Further, these small and medium-sized businesses — the ones that are unable to find funding for their companies — produced 46% of the nonfarm gross-domestic-product in 2008, the last available year for that data. In other words, despite being the engine that drives the United States economy, the small business community is unable to find the support it needs to survive and thrive in an increasingly competitive time.
While on the one hand ignoring the financial needs of small businesses seems self-defeating, on the other, well, it makes perfect sense. An estimated eight out of every 10 businesses close their doors within the first 18 months of operation. Whereas lending to a huge corporation comes with a reasonable amount of assurance lending institutions will be seeing both the principal and hefty interest fees come back to them, lending to small businesses is a much surer way to lose profits. Profit, as you should know, is the name of the game when it comes to lending.
What Can SMB Owners Do While They Wait for a Loan?
Even as the majority of small business owners are having their loan requests ignored, there are some things they can do to help their businesses through until the financial windfall comes:
- Invest in a smart, affordable marketing campaign. If no one is going to lend you money, you need to find cheap ways to start making more of it. Internet marketing, particularly that focused on organic search engine optimization, can help you rapidly increase business, without accruing a huge bill. Just remember,organic results are preferred by 90% of web users, so you’ll want to avoid a pay per click campaign.
- Be smarter with your loan applications. You might be surprised how many businesses have their loan applications refused because they didn’t fill them out the “right” way, or because they didn’t apply to the right institutions. Make sure you explain to your potential lenders — in exhausting detail — where every cent is going. Further, be sure you apply to multiple lending agencies. Doing these things, you may have a better chance.
Was your small business loan rejected? How did you get through the hard times? Sound off in the comments below!