The real reason small businesses can’t get approved for a loan
Oh no, not again. Yes, that’s right, I’m not going there… at least not for today. There is no shortage of excuses and reasons why small businesses can’t get approved for business loans. It never ceases to amaze me how much coverage this topic receives, especially when the national economy is in recession or when important political careers are at stake. Yes, I agree that the growth and success of small businesses is the economic backbone of the US and also that over 60% of the US workforce is employed by small businesses. But where I get out of groupthink is when it comes to the lack of financing for a small business with a business loan. In this article, we explore the ACTUAL REASON that small businesses do not qualify for loans and the truth may even surprise you.
It’s deeper than statistics
I love numbers and, better yet, I love reading financial statements and notes. A love of numbers didn’t become a passion for me in the small business lending world until I came to understand that financial statements tell the story of a business. Similar to the story behind the financial statements, there is a story behind the statistics that small business owners can’t get approved for loans, especially if they belong to a certain ethnic group, gender, or industry. I’m not completely erasing the reality that there is an ounce of discrimination in our world… hey, we live in a broken society with broken people. However, much of this thinking (small business owners can’t get a loan due to skin color, gender, etc.) is simply false. I have been on both sides of the fence, so to speak, in the world of small business lending. I’ve worked for a big bank, and I’ve worked for a non-profit community development financial institution and it’s always the same. The number one reason small businesses can’t (and don’t) get approved for loans is because of the considerably large amount operational risk that exists in these businesses.
Operational risk: it all starts with you
What does operational risk mean? Well, here’s a question to clarify a bit. What speaks more of sustainability: a business that has been operating for at least a year or a business that is still top of mind with the owners? I would go with the first option. Operational risk means that you have and continue to execute your business plan(s) and that the business is cash flow positive (that is, it generates a sustainable profit margin to cover costs and make you money). ). Here’s the sad truth: Not many small businesses get to this point. Most, if any, two years from now are still trying to figure things out. OK, granted, there are levels to this, especially when you look at the diversity of businesses. However, I am referring to those who are struggling to obtain a business loan.
In closing, I offer a couple of ways to minimize your operational risk and increase your chances of getting approved for a loan. (1) He grows a tough skin and learns to survive. The game of business is one of survival. Most days things don’t go your way and you just have to stay the course, be adaptable and stay true to the business mission. (two) Never forget the 3 P’s: Production, Processes and People. Be efficient in the production of what you offer for sale, create and implement processes to improve production efficiency and, ultimately, the customer experience, and finally, hire, train and invest in people who share your vision of the business.