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Bank Lenders Spurning Small Business, Study Finds

Written by Ken Gaebler
Published: 6/14/2011

Regulatory concerns mean banks are turning down many small businesses seeking loans.

Bank loans have surpassed friends and family as the go-to source for privately-owned businesses looking for capital, according to the Pepperdine Private Capital Markets Project report released today.

Business Loan Rejection Small Business

In Pepperdine's Winter/Spring 2010 report, 56 percent of business-owner respondents said they turned first to friends and family when attempting to secure capital. In the most recent report, only 21 percent of respondents named friends and family as their top resource, with 48 percent saying bank loans are now their most sought-after source of funds.

The bad news for small business owners is that bank respondents to the survey reported denying 60 percent of loan applications, with 61 percent claiming that increased regulatory pressure has led them to decline otherwise acceptable applications.

While small businesses might be getting the cold shoulder from banks, there are signs that capital might start to flow from other sources soon.

Small business lending from Wall Street firms is poised to go up, according to a June 9 Bloomberg news article. The news source reported 12 investment firms plan to invest in small businesses with the proceeds from a series of stock offerings worth more than $1 billion.

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