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Small business loans: tight, but not problematic

Recent reports indicate that the need for loans for small business owners has dropped. While this may partly be explained by tighter loan restrictions, a lack of need for loans may also be a reason.

By William Atkinson | Updated on November 03, 2014
Small businesses have a more difficult time obtaining credit than their larger counterparts

In general, small businesses have a more difficult time obtaining credit than their larger counterparts. One reason is that default rates are higher in the small business loan market, especially given the fact that small businesses fail at a higher rate than larger businesses. Another reason is that it is often more difficult for lenders to evaluate small business loan applications, since there is often not a lot of publicly-available information on their businesses. In addition, small business financial statements are not always very detailed, and, in many cases, owners often mix their business finances with their personal finances.

According to a report published by the National Federation of Independent Business (NFIB) in January 2012, “Small Business, Credit Access, and a Lingering Recession,” 16 percent of employers with zero to one employees had a business loan, 22 percent with two to four employees had a business loan, 37 percent with five to nine employees had a business loan, 41 percent with 10 to 19 employees had a business loan, 51 percent with 20 to 49 employees had a business loan, and 57 percent with 40 to 250 employees had a business loan.

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