Why are small business loans tough to get?
One reason it is so difficult for small businesses to obtain a small business loan is because the existing portfolio of loans at banks is experiencing delinquencies and late payment status at a very high rate. As of November, delinquencies were slightly over a percent and late payers were over 5%. Imagine if a bank then assumes it’ll have a “typical” default rate of 1%. This may not seem like a lot, but imagine if for every $100 dollars loaned out, that $7 probably won’t get paid back. This is the reality that banks are facing today when considering to make a small business loan. To compensate for this, some banks or finance companies are just not making the loans. Others are chosing to offer alternatives to loans, or to make small business loans available at somewhat higher rates than historical rates.
