In the News: Less Loans for Small Business Owners?

[Pesso]

Hey Sellers, 

We’re trying out a new type of QOTW this week: In the News!

This week I ran across this super interesting article about big drops in loan availability across the board, which seems to be affecting small business owners the most. I’d love to hear if you’ve felt it in your business. 

US News & World Report: Small Business Owners Feel the Credit Crunch

The article explains how small businesses have been struggling with loans due to a consistent increase in interest rates, making it harder for businesses to pay back. With banks less likely to offer loans, the article shares that approvals have been dropping every month for over 9 months, and down about 50%. They share the example of a pretty successful long-time business getting rejected for a $50,000 loan, despite a history of profit.

Overall it seems like right now it’s a really difficult prospect for business owners who are in a pinch and need some financial infusion.

When I owned my ice cream shop, we didn’t even really try to get loans from a traditional bank. It all seemed too complex and complicated, and we didn’t think we would be approved based on our history. We put a lot on credit cards and dealt with the fees. Towards the end, we did take a few Square Loans which were essential in keeping us afloat through the winters, especially around the pandemic. 

I’d love to hear your perspective on this:

• If you’ve applied for a bank’s business loan recently, how did it go?
• Are you worried about being able to get funding in the future? 

Can’t wait to hear your thoughts!
Pesso

[SlyTheSpy]

Thanks! Being an independent physical game company (original board games and card games) is a scrappy space. Many launch with Kickstarter campaigns, but our path is different. The entire premise of my business is that even the business is a game.

So pulling people into finding clues and solving puzzles through our digital marketing and physical marketing helps reinforce that we take making games to the next level.

[DLRosenberg]

We recently applied for a business line of credit with Chase and received it. It was our first time doing this as we typically use our AmEx and pay it off.

Our accountant suggested we go for the line just in case  we needed it- with the idea that it's alway easier to get it when you don't need it instead of when you really DO need it.

We were lucky to be in a position that the line of credit we asked for was less than what we currently hold in savings... (in Chase- which is why it was easy to get the line).

With that said- I know it's difficult to get a loan no matter what the economic conditions are. I have put together 2 businesses and have always taken the risk and done so in my credit card. 

[Pesso]

Thanks @DLRosenberg -

Congrats on getting approved for the line of credit! That definitely can make sense to go for it and have it just in case, rather than getting stuck and needing it and not being able to get it. 

Even better that it's less than what you have, so you can always pay it off in a swift go if you need to. 

We've also taken the credit card route -- and it can definitely be easier, but for us ended being a lot more expensive.

Definitely let us know how it goes and what y'all do with things moving forward!

[DLRosenberg]

We are die hard AmEx people.. we try and milk all the benefits of the AmEx platinum.. if you travel for business it is an excellent card. 

I was able to redeem points to get business class seats to Paris.. so definitely a win.

[Ironbearjewelry]

I haven't had this issue but my business is 23 years old. It's a shame this is effecting small businesses. Since that's where all big businesses started at once upon a time. 

[PartyManiaMD]

It's why you see fewer and fewer small businesses every year.

The SBA gives money to the banks to loan out, the banks want collateral or a high credit score in order to qualify.

I ran into an interesting issue a few weeks ago, I was working with a lender that pulled out after they found out I had started a gofundme in January.

The SBA literally recommends a gofundme or crowdfunding to raise funds as a method of alternate funding.

So basically lenders are denying loans based on fundraising done via sba recommended methods.

I swear small businesses can't win and with rising rent, cogs going up, and labor more competitive I can't see how new businesses stand a chance.

To me it's fascinating that the investors in the US have dumped billions of dollars into unicorns that never turned a profit while the rest of the economy fights for scraps.

Case in point Doordash has lost money and continues to lose money in the hopes of eventually making money but even during their peak they lost money.

I hope some day we can recognize startups are the bread and butter of a thriving economy and putting huge barriers like credit score or collateral in the way limits it to rich people playing.

Even when I compare my journey to when my family first got into retail is a huge change given wholesaler consolidation. Back in the day vendors would fight for our business, offer free inventory fills, free fixtures, heck even free samples.

The same companies nowadays don't offer any of thatm one company wanted $1,500 per card fixture, not even including cards.

Just my 2am thoughts, I feel like the sba and banks could and should do more to actually support small businesses before its too late.

[Pesso]

Thanks so much for sharing, @PartyManiaMD !

Wow. That is so weird that they pulled out after you had a GoFundMe -- especially if the SBA recommends it. I would think they would be all for you getting creative with different funding methods, especially non collateral based ones. 

I feel all of that. It did feel for a long time that everything was going against us and the system was geared for us to fail. It's a horrible way to feel, and horrible things to happen.

For real. Seeing so many billions go into only a few places that then just collapse, when all of us are pushing and a tiny fraction would set us up for life -- it's hard. 

Good point on the changes from vendors too -- but I guess it's the same for them as it is for us, a lot of us have been cutting back on freebies in order to make it through. Doesn't make it any better though.

Thanks again for sharing -- I hope so too!

[Paula_hanks19]

I agree with you! It’s frustrating how  there were so many fraudulent loans awarded during Covid by the SBA’s PPP and EIDL programs, not to mention how there’s still funding that was never used before they shut those programs down in 2022, and most banks are not willing to help unless you are a larger corporation which leaves a lot of mom and pop businesses left to struggle week to week in order to open our doors. Not to mention how it’s become a “Rob Peter to pay Paul “ way of being able to stay open which only digs us further into debt. I purchased my business in October 2019 and my bank was fully aware that I was going all in and completely dependent upon it being able to continue sustaining itself as it was doing for the previous owner, but I did not feel as if my bank was concerned in assisting any smaller business accounts with funding like they did for larger companies that did business with them. I have relied on the Square loans to be the boost that I needed to stay afloat but the drawback with them is that there is no way to know when an offer will come through or the amount it will be. 

[Pesso]

Congrats on making it so far and so long -- That's a huge accomplishment, @Ironbearjewelry ! 

That's a really good point -- when small businesses suffer, the whole economy can be affected.

[BarnOwl]

In order to get an SBA loan to rescue and renovate the 1870s country store we now run, I had to leverage my farm. It was incredibly risky, but my gut told me this would succeed. It was stressful to say the least. We’ve been open 1.5 years now. Square loans have helped us since all the SBA $ went to the renovation. I use my square $ to reinvest in my biz and those loans have made a huge difference. As my business has grown I am able to pay them off so fast! 

[Pesso]

Thanks for sharing, @BarnOwl .

Wow. That does sounds super scary and risky to put your farm on the line for it. Those are some intense terms.

But that's amazing that you followed the gut, pushed through the stress, and are making it through thanks to business growth. So happy for you and sending you all the good vibes for continued sales and profit and payoffs!

[Zecrepe]

This is what Ive been saying for years,  the huge companies that steel as you shake their hands get the funding.

[GourmetOnWheels]

My bank whom I have been with for 26 years offered me a loan at 12.8% interest

While the savings account pays us 0.01%

Those are loan shark rates.

Now they have been bought by US Bank and the fees are massive. 

Time to look for a new bank

René

[Pesso]

Thanks so much for sharing, @GourmetOnWheels !

Yea, that's a pretty intense rate! Super interesting that they were bought out and raised their fees. It makes sense, but definitely hard on the folks who were bought into one thing and now it's completely switched around and you can feel stuck. 

Let us know if you find a better bank!

[GourmetOnWheels]

@Pesso I went to Relay for Profit First that is am starting next week. Now I need a bank for my wife.

René 

[AllNewU]

I recently secured a bank loan however now they want a deposit down for that loan. the same loan was zero down not too long ago. I did get a decent rate. I think 6.5% for a 5 year loan. If I put down less it was 11.5% rate. I put down the extra $$$$

I like square loans but feel they are holding back at this time as well. Gave me a decline after approving me for no legitimate reason. Never late, paid off numerous loans. Square Capital has me irritated at the moment. I guess I will need to wait until they are ready to help their top customers. I do quite a bit of processing. The only reason I stay with this processing is because I like Square and everything it has to offer.   With the recent Square capital issues maybe a different processing company will save me some money. Going to research that this week.  

[Twpchair]

I believe a lot of us that have been with square for years and years are going to be in a pinch soon. I see more and more people asking everyday if they are still doing loans. Fewer than normal I can tell by the activity on the board. When you get use to something (although no quarantines) come pretty regular over 8 years with no issues it leaves business owners scratching their heads. Good luck to you and your business! ❤️

[AllNewU]

A sign of the times to come?   I hope not!  

[Zecrepe]

Small Businesses pay all taxes, get no credit for hiring people and train them who then move on into your big companies.  We are told that we are the back bone of this country but we are not treated that way.  I am barely hanging on, but I dont want the big bullies to win, so I push forward.  The banks dont care how hard you work or what you sacrifice, if you dont have capital to back up a loan a small business cant borrow money.  I can go to a small lender, but they cant loan me enough, I get small loans from square, but its not enough.  They look at numbers only and not he force driving the business.  

You would think that a global pandemic would change the way humans relate to each other, well it didnt.  If money runs the world it is not doing a very good job.

I am in the food service business, and if all us small businesses decided to not feed you bankers you would be the ones begging for our help.

I have been running my business since 2010, and people are more important than money.

[GourmetOnWheels]

@Zecrepe I totally agree. I am leaving the bank that I have been with for two decades. I have just opened a free account at RelayFi and on May 1st my Square earning will go there. No fees, at all. Or if you want some instant ACH and no fees on Wire transfers 30.00/month.

That is 12.00 less than my bank.

We already moved our savings account to Amex at 3.75% interest as our bank gave us 0.15% in interest on our savings

René

[Stacelyn24]

Recently applied for a $15,000 business loan and was conditionally pre-approved but at the moment I'm in the process of getting together everything they asking for...believe me...it's a lot (everything including my first born).  I want to say it's for about 6% payback in 4 years....before...we could have secured a much higher loan with a lower interest rate, with less stress.  We just need a little to get us over the hump of just expanding, hiring new technicians, and training them up to standards that will bring repeat clients back through the door.

Now I will say that we have used Square Loans in the past, and we really like how easy it is to receive them and be approved....but....when I say that paying back 20% of your gross is killing us (I can't wait to have this last one paid off...whew).  It's 20% of the gross, then square takes their fees from the gross, then we have to pay out commission + full tips....we're left with maybe a a 30% profit margin...basically we make enough at the moment to cover most (not all...thus apply for a loan) not all the expenses.

But we won't...back...down (sing it out loud 🙂