According to research compiled by Scott Shane, Professor of Entrepreneurial Studies at Case Western Reserve University, banks are clearly losing interest in lending to small to mid-size businesses.
Look at his stats. In 1995, the share of loans for $1 million or less for all non-farm, non-residential loans (meaning business loans) provided by banks was 52%.
Since then, year after year the percentage of bank loans for business continued to drop. Seventeen years later, it now stands at just 29%.
You don’t need to be an economist to see that banks are steering away from small businesses.
Shane cites a number of possible reasons why.
First, banks prefer to sell off their loans and business loans are difficult to securitize. The terms and underwriting are not standard across all banks and this make them difficult to package.
Secondly, small business loans are not as profitable as other loans. So, the banks don’t pursue the small business market and go where the top dollars are located.
Third, and this trend really took place after the Great Recession, banks have consolidated. There just aren’t as many banks around. Wells Fargo gobbled up Wachovia. Bank of America merged with Nations Bank and acquired Countrywide Financial.
Fewer banks make it easier for banks to pick and choose where they want to lend money. So they compete for the most lucrative loan prospects and ignore everybody else.
The problem is, small business is the backbone of this country. By allowing these banks to steer away from lending to small business, it stifles our economic growth.
But the great thing about America as well, is that companies will move in to fill this void created by banks. One category that is thriving in this environment is receivable factoring.
Receivable factoring companies such as Forward Business Credit provide an alternative to the banks. When companies need cash quick, rather than get frustrated by a bank staff buried under layers of red tape, they can get approval quickly for funding with one call to a decision-maker.
With FBC, you make a call or fill out our Quick Factoring Quote form. You’ll talk directly with an owner. Some documentation will be requested and then in a short period of time your business can have the capital it needs. Capital for payroll, expansion, suppliers, etc.
There’s always a silver lining. We like to work with businesses. We know their frustrations and their struggles. We want to see small businesses succeed. We can help them along the way.
Go here to learn more about our receivables factoring company