Here’s the secret that banks don’t like to admit: Banks hate giving money to small businesses. That’s why it’s so hard to get small business financing from a typical bank.
According to the U.S. Small Business Administration, a small business refers to any privately-owned business with less than 500 employees. But even nonbank lenders would prefer to provide financing to companies that don’t actually need the funds.
“Why?” you may ask. Look, it doesn’t matter if you are the most financially literate, capable business owner out there, and let’s face it, most aren’t… You the small business owner pose a large risk to banks. What happens if you go on vacation, get sick, or worse? If a company is owned and operated by one person, the business creates a financial risk for lenders every day no matter how well you run it.
And that’s why you cannot gain access to capital on the same highly favorable terms you see advertised on TV or at the rates a corporation like Microsoft got on their most recent loan. That’s because those companies aren’t subject to failure based on the whims of a single person.
A lender who provides your company with financing is essentially investing in you, the business owner. If something bad happens to you, that lender’s investment will probably result in a failure and loss of capital.
So, why is it important for you to build a relationship with one lender? That’s simple. Think of it this way, if you were to put your hard-earned money into a stock and that stock gained value over time, a smart investor will start pulling their initial investment out to recoup their cash. Those profits are now essentially “free money.” Then, with that money, you can afford to take more investing risks.
It works the same way with lenders. Your first, second, or even third loan may not be exactly what you want. They will likely be more expensive, and the terms won’t match what a market giant like Apple can get from lenders. However, as you repay the loan it not only proves to them that you are a reliable borrower, but you will also help the lender earn a return on their funds. Lenders can then offer you better terms on your next loan because their initial investment is no longer at risk.
In today’s world, all businesses must either grow or die. Entrepreneurs like you are no longer insulated by geography or distance even in a small town. Anyone from anywhere can enter your local market by using the internet. Business owners who think they are safe from the competition are often the first ones to lose market share because rivals see them as easy pickings.
You probably know that most new businesses fail within their first year. But you might not know that lack of access to capital accounts for most of those failures.
Don’t let your business fall into the trap of overconfidence. Some competitor is always coming for your business. Act accordingly.
At First Union Lending, our mission is to take you from what Mr. Wonderful on TV’s “Shark Tank” refers to as “the ROACH that you are” to Lori Greiner’s favorite term – “a HERO.”
Let us help you become a hero. We specialize in offering businesses the most competitive rate and loan terms possible. Give us a call at 863-825-5626 or visit firstunionlending.com to start your journey to financial success.
I’m Dennis, senior underwriter at First Union Lending, and I’m here to help.