Why Some Small Business Requests for Credit Are Being Denied - Modern Distribution Management

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Why Some Small Business Requests for Credit Are Being Denied

Recent report outlines some of the more common reasons for rejection.
The National Federation of Independent Business Research Foundation released a report this month on challenges that small businesses face in attaining credit: "Small Business Credit in a Deep Recession." You can also find the report at the NFIB Research Foundation home page.
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An interesting part of the report looked at what small businesses were asking for when they were denied credit, according to the survey the organization conducted for the report. Here were the main reasons (respondents could reply with more than one of the below): 
  • 71% of those were planning to used the credit for cash flow or day-to-day operating costs
  • 48% were planning to use the credit for a reserve or cash cushion if problems were to arise
  • 40% would have used the money for inventory investment
  • 35% would have invested in additional plant, equipment and vehicles
  • 34% would have replaced old plant, equipment or vehicles
  • 24% would have used the credit for real estate or structures
Predictors of success in getting credit, according to the report: higher credit scores, customers of banks with less than $100 billion in assets, more properties collateralized, and fewer second mortgages held.
Forty percent of small business owners attempting to get credit in 2009 said they had all their credit needs met, according to the survey. To put that in perspective, the report says that up to 90% of respondents in a survey in the mid-2000s had had their last credit requests approved.
The roughly 20-page report is available from the NFIB Foundation for free here.

Some recent MDM articles on the topic:

MDM Interview: A Bank’s Perspective – Why Communication Only Helps

Credit Conditions Still Tough for Distributors

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