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Small Biz Shutout: More Rejections at the Lending Line

Small Biz Shutout: More Rejections at the Lending Line

According to a recent study, the number of small businesses applying for credit was on the rise last year but, unfortunately, so were rejections.  Despite claims of an improving economy, small businesses continue to suffer financially. Many companies who managed to weather the economic storm of the last few years, have emerged with a shakier credit profile and devalued assets, such as real estate.  It’s therefore more difficult for them to access traditional financing.  Business debt restructuring can help clean up the balance sheet and make it possible to obtain commercial finance and asset based loans from alternative sources.


Source: by Sarah Johnson

More small businesses applied for loans last year, but the number receiving credit stayed the same.

Despite moderate growth in the U.S. economy toward the end of last year, small businesses were more likely to face rejection by lenders in 2011, according to a study released today by the National Federation of Independent Business (NFIB).

For each of the past three years, close to the same number of small companies — between 1.6 million and 1.7 million businesses — were able to obtain credit from a financial institution. But small businesses made more tries at getting a loan or line of credit in 2011, meaning more got turned away. “Demand rose relatively substantially . . . but we didn’t see any net new people getting credit,” says William Dennis, NFIB senior research fellow.

Part of the reason, of course, is that some small businesses are still hurting financially. Last year lenders received more requests from small-business owners with shakier credit profiles than from those likely to pay back their loan on time.

But much of the blame for small businesses’ unmet credit needs falls on the real estate market. Nearly all of the 850 small businesses surveyed in the NFIB’s annual credit report own some sort of property, and those assets’ declining values have affected potential borrowers’ clout with creditors. Many small businesses have put up their company’s or even their own personal property as a way to fund their business. Nineteen percent have used mortgages or the proceeds from mortgages and 15% have posted property or other collateral to get a business loan. “With depressed balance sheets and the loss of collateral [value], businesses that would otherwise be capable of borrowing can’t,” says Dennis.

But that hasn’t stopped small businesses from trying. The NFIB reports 57% of small-business employers sought a loan from a financial institution last year, a 9% increase over 2010. In 2011 companies were more interested in obtaining new lines of credit and credit cards than other kinds of loans, and requests for loans and line renewals were flat. In fact, only 29% of small businesses were carrying a loan as of the end of 2011, a decline from 44% three years ago.