When it comes to access to credit services in the US like in any country, small businesses have far more serious roadblocks compared to their bigger colleagues. More specifically, here are some of the challenges that small business borrowers encounter more often.
Limitations of geographic location
Richer neighborhoods are more likely to be considered for credit as opposed to poorer ones. And it has become increasingly easier to separate the two social classes since the richer and the poorer groups have clustered farther away from each other over the last few decades.
Inequality in terms of incomes has measurably gone up. Richer neighborhoods inhabited by richer folks continue to have better access to resources and become even richer, leaving the poorer neighborhoods behind. The limited access to resources characteristic of the underprivileged localities means that they have little or no collateral to warrant bank loans. As such, they find it extremely difficult to establish small businesses with funding from banks and a few other lenders.
Ethnicity and race
Studies reveal that members of certain ethnic groups or races have easier access to small business funding than others. The US society has finance system structured in a way that the traditional, online, non-profit and alternative lenders do not reach everybody.
Some racial groups historically have better access to property ownership. Such ownership means that they have assets such as homes that generally provide the foundation for wealth and equity accumulation.
Those with no such property simply cannot build equity in the home and as such lack the asset to use as collateral for their small businesses. Needless to repeat that the lack of collateral is a major challenge. It means that a good many minority of borrowers will turn to the only options available for them.
While at some point this option could mean unsecured lending in the form of costly online products payday loans at worst, the situation has changed somewhat. Such small businesses can now get funding much easily from platforms like FAM.
Past credit performance
A borrower’s past credit performance always determines how willing a lender will be to administer loans to them. A good credit history is a clean ticket for a loan, though traditional banks may still create roadblocks for small businesses.
But there are many alternative lenders that are willing to work with small businesses that have good credit performance. If you need any help with anything related to credit, don’t hesitate to contact us.