When Seeking Bank Loans Small Business Owners Still Struggling

According to the survey, more than half of the owners who sought loans during that time period were aiming to pay running expenditures rather than develop their firms.

Furthermore, small company owners are feeling the pinch of increased pricing.

According to the most current data from the U.S. Bureau of Labor Statistics, the country's annual inflation rate is now 7.9 percent for the 12-month period ending in February. This is the highest level since January 1982. As a result, the Federal Reserve is hiking interest rates, signifying that the cost of borrowing money is increasing.

Even in normal times, small businesses found it difficult to obtain loans from traditional banks because "the underwriting models are really designed to take a look at like multiple years of historical financials to risk assess whether they can deploy that capital," according to Nick Mathews, CEO of Mainvest, an investment platform that connects small business owners and investors.

"The banks don't really know how to reconcile their usual models to this ridiculous amount of unpredictability," he explained, explaining why loan applicants are more likely to be denied or get less money than before the outbreak.

"The underwriting models that banks utilize are predicated on consistency, and when that consistency is missing over numerous years, it makes it incredibly difficult for huge institutions to change," Mathews noted.

Bobby Morelli, the owner and co-founder of the Chicago business The Hot Dog Box, attempted to qualify for a Small Business Administration (SBA) loan in 2020. However, he did not qualify through the SBA process since he "had not been in company for two years before."

"It felt like a punch to the throat," Morelli said in an interview with Yahoo Finance. "I had some money saved up from my years of working and things like that. [However], I felt that not being able to acquire money, the usual path, was stifling our progress."

Morelli, who operates the business with the support of his 10-year-old daughter, searched for another source of funding – crowdsourced loans — after being unable to convince a typical bank to offer him a loan.

"It kind of disarms a lot of the red tape that you'll go through with typical funding sources, and you're not held down to those restrictive alternatives," Morelli explained.

Morelli used Mainvest to restructure his debt, which offered crowdsourced loans at low interest rates.

Morelli isn't the only one. According to data from the 2022 JPMorgan Chase Company Leaders Outlook poll, small business leaders are increasingly looking for unconventional approaches to achieve their objectives.

Nearly half of small firms expect to use business credit cards to help obtain financing, up from 38% a year earlier, with a line of credit finance coming in second. In addition, 68 percent of small firms expect to investigate online funding possibilities, up from 56 percent a year earlier, according to the report.

According to data from online lender Biz2Credit, large banks granted 14.7 percent of loan requests in February, down from 28.3 percent in the same month in 2020. In addition, small banks granted 20.5 percent of loan requests, compared to 50.3 percent in the same month in 2020.

One method to assist struggling company owners, according to Molly Day, vice president of public relations at the National Small Business Association, is to reform lending standards to allow for greater lending "More lending to companies through community credit unions They are only permitted to lend to enterprises and small firms up to a specified proportion of their total assets. If we could lift that ceiling, it would be great assistance because credit unions are in the neighborhoods and know these folks, so you'd be able to secure more of these character-based loans."