Bank Credit Restrictions Hurt Small Businesses

Consumer and small business lending used to be dominated by the household names of finance—but this isn’t the case anymore. The sting of the Great Recession continues to be felt by some Americans who have trouble obtaining a loan for their business or personal use. The fact is banks have tightened their credit decisioning process. This is how bank credit restrictions hurt small businesses that are in need of a business loan. Fortunately, new financial institutions and good old-fashioned innovation have opened new avenues of opportunity for those left behind by the modern credit market.

What happened to small business lending?

Ever since the depths of the last recession, it has been generally harder to get approved for a loan of any kind. In response to what some perceived as lax restrictions on who banks were lending to, high credit scores and in-depth financial details became the norm for any consumer or business looking to obtain financing. According to USA Today, even nearly a decade after the start of the recession, banks continue to tighten credit restrictions in some areas. These credit restrictions hurt small businesses that are looking for funds to fuel their business operations in all types of industries.

To foster a robust economy, it is crucial for consumers and business owners to have access to credit. That’s why economists, including some from the Harvard Business School, are concerned about the current state of small business lending.

In a recent study, Harvard researchers found that in the years since the recession began, small businesses have found it difficult or impossible to secure loans of less than $250,000. At the same time, a regulatory environment favoring borrowers with lengthy credit histories and without poor credit has made things worse for young growing companies. This has made very difficult for entrepreneurs who want to get new ventures off the ground.

If this trend continues, Harvard researchers predict dismal results for the U.S. economy as a whole. Small businesses account for around half of the American private sector workforce and have been responsible for 60 percent of net job creation since 1995. But the Great Recession had a disproportionate effect on smaller companies: 60 percent of job losses during this period came from that market. That filters down to every sector of the economy, so it is vital to provide help to these small businesses.

Responding to credit needs

The effects of a bad market downturn and pervasively strict lending from major banks have worked like a one-two punch to the core of the U.S. economy. It’s likely that the tighter small business lending environment is partly responsible for the sluggish recovery that Americans have come to resent. But thanks to ingenuity on the part of a new class of financial institutions, more American businesses are finding themselves back on solid ground.

QuickBridge is proud to be part of a new generation of lenders serving businesses left behind by the unrealistic expectations of name-brand lenders. Using new technology to look beyond credit scores and formulas, QuickBridge works closely with small businesses to get them the unsecured funding they need, precisely when it’s needed. It’s an approach that is part of a new, innovative push to help business owners grow and prosper well into the future.

Contact QuickBridge for more information on how we can help your business.

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