Constantly hitting the refresh button to see if you’ve been funded? Even if not, chances are that, as a small business owner, you’ll be looking to apply for a loan at some point – and that’s great! Financing can allow your business to invest in new opportunities to fuel growth and improve sales. All the pleasantries aside, applying for a loan can be a long and tedious process and there’s no guarantee you’ll be approved.
Typical business loan applications go through a couple of stages:
- The small business gathers info, fills out paperwork and applies for the loan
- Lender underwrites the loan
- Lender approves loan, sends commitment letter
- Lender closes on the loan
This back and forth process between bank and business can easily take at least 2-3 months and that’s assuming there were no hiccups along the way.
So why does this take so long?
Well, for starters, the paperwork and vetting itself is a process that requires scrutiny on behalf of both parties. Businesses and banks need to make sure they have all their paperwork up-to-date and accurate. Missing or incorrect information can result in delays or even outright rejections. Businesses can try expediting the process by having their information ready to go, but there’s no guarantee this will speed up action from the other end. Also, be aware that banks don’t regularly update the status of a business’ application.
A problem for small businesses is their status as a small business. Banks can increase their profits by focusing on larger loans and small businesses usually request loans of less than $500,000. This is a reason banks may prioritize larger business applications and put small business applications on the back burner. Another issue for small businesses is that they often don’t have sufficient collateral (an asset that the borrower offers to the lender as security for the loan). For small businesses, this often translates into the personal financing of the business owner. Insufficient collateral easily results in denial of a loan.
Not only are bank loans tough to qualify for but they take a long time to process and at the end of the day, there’s absolutely no guarantee that they’ll be approved. This can hold small businesses back as they wait to find a good source of financing that values the role of small businesses in the community. That’s why finding alternatives to bank loans is often a much more viable solution for small businesses!
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By Juliana Schneider