Business owners have faced the dilemma of getting a bank loan over the years. The governments are trying their bit, but are unable to improve the lending market. All want the economy to be back on track, but what is the underlying reasons hindering this much-anticipated thought.
Research studies point out that small businesses lack the collateral security, and bank will not give damn loan without collateral. The basic dynamics of lending markets. About 60% of small business loan applications are rejected for lack of collateral and again another 20% are termed as marginal borrowers.
Small businesses face collateral crunch, and need nor even think of approaching a bank for a loan. The only way out is to turn to private money lenders, factoring agencies, merchant cash advance loans, unsecured loans. However, all this has come with a hefty price tag.
Apart from being able to secure a small business loan, the premium rates are skyrocketing. Quite higher than the normal credit card rates. All this backfires the business owners and they have to sell products at discounted rates to be able to pay back the loan amounts.
In cases where the business owners are able to pledge some collateral, they are mostly their owned house properties. The experts caution them as this involves risk & dilutes the thin line between business and personal belongings.
If the businesses have some equipment, merchandise, physical or intellectual properties, they can be used as collateral. Again, how many of the small businesses aspiring for loans have these collateral? What should they focus on: building businesses or building assets? Doing business is important, but the credit worthiness also matters.
The stakeholders need to review the dynamics of the lending market as the situations may worsen with times to come.
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