There’s been an enormous amount of discussion in the media during the past couple of years about how small companies can’t access company credit (loans, lines of credit, working capital advances or company credit cards).
In actuality, several small business associations assert that 41 percent of small companies can’t access company credit or business capital.
I say they’re incorrect. What they are saying is they cannot access business credit or.
Certainly, getting a business loan in 2004 through early 2008 was a great deal simpler than it currently is. However, what really happened was that company loan underwriting criteria where fall or reduced – enabling individuals and business owners, a lot of who shouldn’t have gotten charge in the first place, to get risky loans – loans which weren’t reimbursed and could haven’t been reimbursed; quite like what mortgage banks and mortgage brokers did with home loans.
They underwrote insecure singapore sme bank loan broker merely to accumulate origination and processing fees then sold off those loans to investors (again collecting additional fees) – holding no danger in the long run. This did was put plenty of toxic small business credit in the marketplace – .
Consider it this way. Let us say that on a scale of 1 to 10 according to financing problem – being the most easy option of acquiring a business loan. Prior to 2004 – company loans had a variety of about 5. They weren’t easy to get or difficult to get. Banks followed standard loan underwriting procedures. Those who need to get business loans did and – did not. At that moment, underwriting was based on prices of repayment of capital and risk.
However, when congress open the secondary market for those loans (just like they did for secondary home mortgage loans with Fannie and Freddie) – banks realized that they could quickly amass underwriting fees then pass those loans off without assuming any risk. According to this (just like with the housing market) – they reduced their underwriting criteria (why not because they had no risk – it was up side for them). Therefore, the problem number for company loans dropped from 5 all the way to 1 (where anybody could get a business loan regardless if they qualified or not).
Therefore, for decades, business owners were able to efficiently get company capital if they were prepared to cover the bank’s or lender’s fees.
Now that the market dropped, the problem number for company loans has once more returned to its usual position of 5 – making them not simple or difficult to get.
The 41 percent who assert they cannot access business credit now are the people who shouldn’t have gotten charge in the first location.
The bottom line is that business loans aren’t tough to get – they were just really easy to get a couple of years back and have resorted back to where they ought to be on the difficulty scale. To acquire a business loan now – you need to first understand why your company needs outside capital (it’s to be for expansion – whatever else is wasted money) and understand how your enterprise, as it stands, can leverage itself to acquire those funds – there are as many ways to acquire business capital [out] as there are petition and each one isn’t any harder than it ought to be.