The web is riddled with stories of small businesses getting denied loans by banks, but why?
In a recent article written by Jason Fenton, Bank loans to small business fall to 12-year low, which outlines several stories of small business owners woes in getting loans from banks. One story of an ex-software executive that provided personal capital to start a pickle brining business and then showed four years of revenue growth of over 40% was flatly denied a loan to get equipment to automate and grow. Even though this executive (who oversaw 100s millions in revenue) turned small business owner had no personal debt and a high net worth and showed progress
A good friend of mine, Michelle Goerdelle who runs Biz Loan Link - a consulting company who helps small businesses obtain business loans, has told me many times banks “have a process” to providing loans and if the small business can’t fit into that process and certain financial parameters you might as well not even talk to them. The problem is that the banks who lend to small businesses don’t tell you what parameters they look at so you could spend a lot of time and money getting “your books” in order just to find out you’re not worthy of a loan. That’s why you would get the help of someone like Michelle who has over a decade of experience in working for and with small business lenders.
When meeting with small business lending professionals at banks like Bank of America and Wells Fargo the following are some reasons they give for not providing more lending or pulling existing loans – yes, they have the right to ‘pull’ your loan out from under you!
- Unable to get financial reports in a timely manor
- Basic financial reports not in good order so it makes it difficult
- They have been burnt on failed businesses without seeing it coming
- Business owners don’t understand what financial metrics banks care about
- Less owners are seeking loans because they don’t think they’ll get them
Now, we could blame the banks or we could get collectively batter at running businesses to turn the tables and have banks running to ask us if they can lend us money. How do we that? I’ll save that for another post, but for now think about how you can up your game in financial acumen before you go to a bank.