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Most small business owners are excited about the near future, but can’t get the loans they need to grow, according to a new report published by Dr. Jon Paglia, finance professor at Pepperdine University.

Half of the 1,221 business owners surveyed tried to find a loan to help their companies grow in the last six months. Bank loans were the most popular type of credit because small business owners see bank financing as the cheapest option available, according to the report.

But more than half—54%—of companies were denied credit. Most of the denials came from banks.

The reason? There appears to be incongruity in the expectations of small business owners and bank leaders. Paglia also interviewed 284 bankers for his report. He found them to be much less optimistic about the economy’s prospects than small business owners.

For example, 72% of bankers said they expect to close fewer financing deals in the next six months than they have in the recent past. The biggest reasons? Bankers worry that companies won’t be able to find access to capital (which is ironic, given that the banks are primarily responsible for lending out that capital). Banks also worry that continued economic uncertainty will make it difficult for companies to meet their growth expectations.

And increasingly, government regulation will become a major issue for small businesses, bankers worry. More pressure from regulators is the No. 1 emerging issue for small, private companies, according to the survey.

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Image: Omar Bárcena, via Flickr

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  • Roger

    Fact: many small businesses, especially startups, actually need more equity (not debt). Despite the media hype, most banks are still lending and the criteria is generally the same (sufficient cash flow & collateral). However, many small businesses don’t have both and are thus less eligible for traditional debt financing than they were before the economy turned upside down. Much of the problem is that small businesses are not talking to the right lenders. If you have positive cash flow, talk to a cash flow lender. If you have a ton of assets but tight cash flow, talk to an asset based lender. Don’t just ask your CPA or lawyer for a recommendation; you will get out of the search process the effort you put in. Cast a wide net, just like dating!

    • Andrew

      Nobody lends anything unless you have a 1 million dollars in the bank. Period.

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