The Real Reason Small Businesses Can’t Get Approved for a Loan
Website design By BotEap.comOh no, not again. Yes, it’s true, I’m not going there … at least not for today. There is no shortage of excuses and reasons why small businesses cannot get approved for business loans. The coverage that this issue receives never ceases to amaze me, especially when the national economy enters a recession or when major political careers are at stake. Yes, I agree that small business growth and success is the economic backbone of the US and also, that more than 60% of the US workforce is employed by small businesses. But where I depart from the group I think is when it comes to the lack of financing for a small business with a business loan. In this article, let’s explore the REAL REASON that small businesses do not qualify for loans and the truth may even surprise you.
Website design By BotEap.comIt’s deeper than statistics
I love numbers, and best of all, I love reading financial statements and notes. The love of numbers didn’t become my passion in the world of small business loans until I came to understand that financial statements tell the story of a business. Similar to the story behind financial statements, there is a story behind the statistics that indicates that small business owners cannot get approved for loans, especially if they belong to a certain ethnic group, gender, or industry. I’m not completely eliminating the reality that there is a hint of discrimination in our world … hey, we live in a broken society with broken people. However, a large part of this thinking (small business owners cannot get a loan due to skin color, gender, etc.) is simply untrue. I’ve been on both sides of the fence, so to speak, in the world of small business loans. I’ve worked for a large bank and I’ve worked for a non-profit community development finance institution and it’s always the same. The number one reason small businesses cannot (and cannot) get loan approval is due to the considerable operational risk that exists in these businesses. Website design By BotEap.comOperational risk: it all starts with you
What does operational risk mean? Well here is a question to clarify something. What speaks more of sustainability: a company that has been operating for at least a year or a company that is still in the mind of the owner? 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 has positive cash flow (that is, it returns you a sustainable profit margin to cover costs and generate income). Here’s the sad truth: Not many small businesses make it to this point. Most, if there are any, two years from now are still trying to figure things out. Okay, there are levels to this, particularly when looking at business diversity. However, I am talking to those who are struggling to obtain a business loan. Website design By BotEap.comIn closing, I offer a couple of ways to minimize your operational risk and increase your chances of getting approved for a loan. (1) Grow tough skin and learn to survive. The game of business is one of survival. Most days, things won’t turn out your way and you just have to stay on track, be adaptable, and stay true to the trade mission. (two) Never forget the 3 Ps: production, processes and personnel. 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 .
I love numbers, and best of all, I love reading financial statements and notes. The love of numbers didn’t become my passion in the world of small business loans until I came to understand that financial statements tell the story of a business. Similar to the story behind financial statements, there is a story behind the statistics that indicates that small business owners cannot get approved for loans, especially if they belong to a certain ethnic group, gender, or industry. I’m not completely eliminating the reality that there is a hint of discrimination in our world … hey, we live in a broken society with broken people. However, a large part of this thinking (small business owners cannot get a loan due to skin color, gender, etc.) is simply untrue. I’ve been on both sides of the fence, so to speak, in the world of small business loans. I’ve worked for a large bank and I’ve worked for a non-profit community development finance institution and it’s always the same. The number one reason small businesses cannot (and cannot) get loan approval is due to the considerable operational risk that exists in these businesses. Website design By BotEap.comOperational risk: it all starts with you
What does operational risk mean? Well here is a question to clarify something. What speaks more of sustainability: a company that has been operating for at least a year or a company that is still in the mind of the owner? 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 has positive cash flow (that is, it returns you a sustainable profit margin to cover costs and generate income). Here’s the sad truth: Not many small businesses make it to this point. Most, if there are any, two years from now are still trying to figure things out. Okay, there are levels to this, particularly when looking at business diversity. However, I am talking to those who are struggling to obtain a business loan. Website design By BotEap.comIn closing, I offer a couple of ways to minimize your operational risk and increase your chances of getting approved for a loan. (1) Grow tough skin and learn to survive. The game of business is one of survival. Most days, things won’t turn out your way and you just have to stay on track, be adaptable, and stay true to the trade mission. (two) Never forget the 3 Ps: production, processes and personnel. 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 .