The Real Reason Small Businesses Can’t Get Loan Approved

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 cannot get approved for business loans. It never ceases to amaze me the coverage this topic receives, especially when the national economy enters a recession or when important political careers are on the line. 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 break out of groupthink 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.

It’s deeper than statistics

I love numbers, and even better, I love reading financial statements and notes. The love of numbers didn’t become a passion for me in the world of small business lending 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 cannot get approved for loans, especially if they belong to a certain ethnic group, gender, and/or industry. I’m not completely removing the reality that there is a modicum 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 because of skin color, gender, etc.) is simply not true. I have been on both sides of the fence, so to speak, in the world of small business loans. 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 to sustainability: a business that has been operating for at least a year or a business that is still on the minds of the owners? I would go with the first option. Operational risk means that you have and are continuing to execute your business plan(s) and that the business is cash flow positive (that is, generating a sustainable profit margin to cover costs and make money for you). ). Here’s the sad truth: not many small businesses make it 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) It grows a tough skin and learns to survive. The game of business is one of survival. Most days things don’t turn out the way you expected and you just have to stay the course, be adaptable and stay true to the company mission. (two) Never forget the 3 Ps: Production, Processes and Personnel. Be efficient in producing what you offer for sale, create and implement processes to improve production efficiencies and ultimately the customer experience, and ultimately hire, train, and invest in people who share your vision of business.