Are the Big Banks Still Ignoring Small Businesses?

Getting a bank loan is increasingly becoming a nightmare for most small businesses. A small business often requires funding for operating costs and expansion. Venture capitalists and angel investors may be unavailable. What then does the small business owner do? They approach a big bank but unfortunately get turned away. Why are the big banks still ignoring small businesses?

Low Credit Score

The first thing that a bank looks at when a business or individual approaches them for a loan is the credit score and credit history. Businesses that delay payments to lenders, suppliers and on credit cards issued get a low credit score. This translates as inability of the business to pay back the loan on time if granted.

Lack of valuable Collateral

Collateral is something that can be offered to the bank to hold on to as security in the event of default in repaying the loan.  The collateral should be of almost equal value or higher than the amount of the loan. Most people offer their cars or houses or even other businesses as collateral.

Risk of the small business collapsing

Small businesses are at a higher risk of failing compared to big ones. A small business for example a proprietorship or a small partnership is easier to close down id the owner(s) wake up one day and decide to close shop.

Risk of default

A small business is seen as to have higher chances of being unable to pay back the loan and interest accrued.

High interest rates

Due to the high risk incurred by the big banks to fund a small business, they may charge ridiculously high interest rates on the loan. This then becomes unbearable for the business owner to repay, making the bank ignore the small business.

Low Returns

For a small business, the returns may not be enough to cater for operation costs leave alone to pay back the loan. Sometimes the business may even operate on a loss.

Too small a loan

Small businesses often require small loans that they can be able to pay back. These small loans are not as profitable to the bank as the big loans. Big loans offer bigger interest margins.

Poor presentation

Confidence and knowing your business is key when you approach a big bank for a loan. A small business owner who knows the numbers and facts about their business is more likely to get the loan.

Yes, big banks are still ignoring small businesses.

Business Loans

The Difference Between a Business Loan and Line of Credit

When you need money to build, start or grow your own business, you have to know the difference between a business loan and line of credit. Each one of them has its unique purposes that could give your business a boost, but by understanding the differences, you will be able to make the right decision. Of course, there are advantages and disadvantages in both of them, and your decision depends on what is best for your company and what are you trying to achieve.

Interest rate

First off, you have to understand that interest rate for the business loan is different than the line of credit. If you choose a business loan, you will get fixed interest rate, while a business line of credit has a variable rate which is tied to the prime interest rate. That means that your interest rate could fluctuate 2% over prime rate. The interest rate will adjust only once a month.  Here is a video to help explain the interest rates.

Payment Schedule

With a business loan, you will be able to schedule a number of payments with a payment amount because the interest rate is fixed, so you will know the exact amount you have to pay at the very beginning. You have the possibility to make the payments on the monthly, quarterly, or annual basis.

For a business line of credit, the amount is changing on a monthly basis so you have to make payment on those conditions. Also, payments are based on the amount that you agreed with the bank in the previous 30 days.

Draw Schedule

The business loan becomes active when all the loan documents are signed, and once they are issued and you get paid you will not receive any additional arrangements from the loan.

A business line of credit is functioning like a credit card, so for example, if you have $30,000 in the line of credit, you can draw and spend on the line of credit as long as you have that amount.


Business loans have numerous different terms that are depending on the amount and previously signed agreement. They cannot be longer than five years.

The line of credit may last for 10 years, but the bank has the power to call off and cancel the line of credit and to demand the business to pay everything in advance.


When you are using business loan in order to close the loan you have to pay a processing fee, appraisal fee for any collateral and credit fee. For business line of credit, you will be charged with processing fees. The bank could, for example, charge you $50 for every transaction and because of that lines of credit are more profitable for banks than businesses.

These are the main differences between business loan and line of credit and you should be informed of them if you have a small business or you want to improve it by taking loan or credit. It all depends on your line of work, achievement goals and amount that you are willing to get and to pay afterward.