Some banks seem to be against the giving of small business financing. The term ‘small business financing’ is used, in this context, to refer to business loans that are small in terms of the amounts given, as well as loans of all sizes advanced to businesses that are small in size. The banks in question will usually not say that they are against giving loans for small businesses because they know that saying this explicitly would push away a large percentage of customers; even those who may not be in business, but who find such a declaration ‘snobbish.’
Small Business and Bank Financing
Meanwhile, a businessperson opens an account with the said bank. It turns out to be quite an active account, as would be expected of a business account. At some point, a need arises where they need some small amount of money, say for short-term working capital as they wait for cash-flow to improve. They expect it to be the only natural for their bank, to which they are loyal, to extend such a facility to them. Some owners have started to use small business credit cards at Chase.com to establish a credit history so they can qualify for a loan.
Betrayal of Small Business Finance
It comes as a great surprise for them to be turned down by their banker. They may never be told bluntly, but on asking through the grapevine, it turns out that the said bank has an unwritten policy of not giving financing for small businesses. They feel betrayed, seeing that it would be difficult for them to borrow from another bank (because for some things, banks can only lend to people who have established relationships with them).
Reason Why Business Loans Do Not Get Funded
In situations like that described here, it would be reasonable for people to express an interest in knowing why some banks are unwilling to give small loans for business. As it turns out, the ultimate reason some banks are reluctant to extend “small business finance” is that such loans are viewed as being ‘higher risk loans,’ and the costs of administering such loans can often be high. So the banks decide to have a quiet policy of not funding such loans.
There is a lesson here for you, as a business person: that you should try to find out, both formally and informally, whether any given entity you consider making your business banker has such a policy, before actually signing up with them. Otherwise, you could find yourself in a situation where you have a problem that your bank could easily help with, but which due to such a policy, it inexplicably refuses you.