Are Loans For Small Business Obsolete?

It is generally held that competition is good for the economy of a country because the customers profit from superior quality of goods and services

. The economy benefits from increased customer confidence too. However, increased competition means that all business enterprises are on equal terms as far as the terms of trade are concerned.

All business enterprises are equal as far the business licenses go and the terms of trade go. However, the relatively smaller business enterprises are at a disadvantage because of their relatively smaller capital base. This is the reason these business enterprises need loans to expand and be on even playing field with the bigger enterprises.

However, the smaller businesses have been facing a lot of difficulties, as far as the financing of the business is concerned. Banks and financial institutions have increasingly stiffened their norms and regulations for landing money to small enterprises.

Increasingly, local people are being declined of small loans by the banks because they do not have collateral. Even if the loan applicants intend to buy a business that has a constant cash flow, the banks would still insist on collateral that would amount to around 50% to 100% of the total value of the business they want to buy.

The banks and financial institutions, being commercial enterprises, are driven by profit motive and would naturally want to protect their capital. Also, incidences of loan defaulting by small enterprises in the past could be factors behind the tightening of purses by these banks and financial institutions. Hence, loans for small business have been drying out a bit as the banks and financial institutions grow increasingly reluctant to lend out loans for small business.

The federal authorities have been helping the small enterprises out by arranging for franchise loan. A franchise loan is one in which the federal authority arranges finance for smaller business enterprises by getting the financial institutions lend money and capital to the smaller enterprises.

The terms and conditions are mutually beneficial so that the loan is secured and the smaller business enterprises are able to obtain the loan they need to consolidate their business.

The loans for the small business funding have been doing wonders for the smaller businesses who want to be on even playing field with the bigger business enterprises. The loans that are extended by the financial institutions are varied and of different categories such as loans for capital equipment, loans for buying business property, loans for buying farm equipment, electrical equipments and for expanding the business as a whole.

Overall, the loans have done a world of good for the smaller businesses and there is absolutely no doubt about it.

by: Karen Schimpf

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