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3 Reasons Why Small Business Loans Were Easier To Get

 

Reaching a peak sometime in 2018, small business loans had grown increasingly easy to acquire. However, as of today, such an idea is subject to debates. The federal reserve in that same year increased the federal target range for its fund rates from 2.25 to 2.5.

In plain language, the economy of the United States was strong enough to accommodate small business startups and keep unemployment on a steady low. All these effects were noticed on the sustained 2% inflation rate as seen throughout that year, which also kept us all confident that extended periods of inflation had been eliminated.

 

These are the 3 major reasons why small business loans were easier to get.

1.      A Shared Confidence in the System.

Both business owners and bank and investors established a level of confidence in the American financial system. Reasons for this are not too far from the observed economical stability, which doesn't only give a Leeway to small business owners but also reduces the risk factor for lenders (banks and investors).

 

The ‘risk factor’ is an age-long issue associated with lending and other forms of investment. Small businesses, therefore, had always been met with obstacles such as collateral insufficiency, low credit score or an altogether 'risky industry' when applying for a loan.

 

However, this was tackled by the inception of the SBA (Small Business Administration) which not only allows entrepreneurs to confidently request a loan from the bank but also kept the bank assured of not having to bear the burden should such businesses fail.  

 

The recent economic downturns have forced banks to reduce their loan request acceptance, despite the availability of the SBA which carries about 75% of the loan risk; banks can’t afford the risk of the remaining 25%.

2.      The Internet Accelerated Everything

Over the past decade, physical processes like lending and hiring had constantly been reestablished on the web, making them faster and easier to complete.

 

Application and approval of small business loans now can be completed without necessarily having to visit a bank. A good example is the gradual acceptance of FinTech by typical banks and other lending institutions. These banks partner with FinTech specialized companies which ultimately increases their income.

 

The banks don't have to increase their staff to make its loan advertisement as widespread as needed; FinTech Companies cover that area by targeting customers via digital marketing.

 

This way, loans are easily applied for, the approval process is accelerated, banks make their profit while increasing loan offerings and everybody wins.

 

Another major benefit of the internet in relation to loans is sophisticated analysis. The required criteria to be fulfilled before an applicant qualifies for a loan is integrated by the FinTech companies. This easily classifies applicants into categories that determine how much they can lend or if they are at all eligible for a loan.

 

This leads me to my third and final point.

3.      Entrepreneurs Became Increasingly Trusting Of On-Line Transactions

 

There’s a general skepticism that comes with making transactions over the web, most likely due to the fact that; if anything goes wrong with such transactions there are no physical proofs or witnesses to having made such transactions in the first place.

This skepticism was so common with old people, which did increase with an increase in the rate of internet frauds. But, Millennials (people born around years 1980 to 2000) have been able to encourage the older generation to welcome online transactions as the next evolutionary phase in the financial world.

Bearing in mind that a large percentage of people that engage in small businesses are of the older generation, it comes to light that recognizing digitized transaction as a safe and efficient, was a major leap that made small business loans easier to get

To sum up

Small business loans are still pretty much available for interested applicants, there would always be a place for new entrepreneurs as a large chunk of the economy depends on the innovations they bring to the table. Besides, taking a loan is easier now that everything runs digitally.

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