Shifts in the Small Business Loan Market

Small Business Loan

In recent years, it was much easier for you to get a small business loan for your company. Simply demonstrating a high personal credit score and providing little further proof could get you a large amount of funding in a very short period of time. In recent years, this has changed drastically because more and more companies have gone bankrupt and defaulted on their loans. We will be discussing how companies are funding their ventures, in today’s article.

Large financial institutions are no longer lending out money as quickly as in times before. This is despite efforts to encourage them to do so through programs such as the Small Business Administration loan program.

Many business owners are turning to personal credit and resources in order to fund their business expenses. This practice is not without greater risk, but many business owners are willing to take on the risk in order to continue their operations. In fact, the most common source of funding for small companies is home equity lines of credit. This is especially true for single person entrepreneurial companies, or professional companies, such as dentist offices.

Home equity lines of credit are just what they sound like: a credit line based on the equity you have in your primary residence. Obviously, this exposes you to greater risk in case your business fails, since you’d be putting your family’s residence at risk. Second to this would be business credit cards and business lines of credit. This shift in funding sources is worrisome to many economists, as it means we are exposing ourselves to greater credit loads and higher interest rates.

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Shifts in the Small Business Loan Market was last modified: October 25th, 2011 by Amit Kraidman
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