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Big banks warming to small businesses - The Washington Post

<a href='http://morningbiznews.com/en/search/Small+Business'>Small Business</a>, <a href='http://morningbiznews.com/en/search/Lending'>Lending</a>, <a href='http://morningbiznews.com/en/search/Banks'>Banks</a>, <a href='http://morningbiznews.com/en/search/Credit+Score'>Credit Score</a>

I have always supported the opinion that the economic prosperity of a country comes from the success of small businesses. And the fact that banks are starting to lend to small companies in the USA sounds very promising.

The significance of credit score

Starting a business in the States can be an easy task if you have enough finances to support a startup, but if you need capital to develop your idea, you might be facing a big problem. And even for existing businesses who want to expand might be challenging to get a loan from a bank. The reason for this is most commonly poor credit score.

Credit score is the rating you get from engaging with the bank system in the United States. It is formed based on open credit utilization, payments made on-time, average age of open credit lines, total accounts, hard credit inquiries, and derogatory marks - accounts in collections, bankruptcies, civil judgments, and liens.

After the Economic crisis in 2008, a lot of people suffered losses and that reflected negatively on their credit score. But in order to get a loan from a bank you have to have an excellent credit score, so this created a catch 22 type of situation.

Why are banks lending now?

In the past few months the economy is noticeably picking up. The number of created jobs is increasing, the unemployment rate is falling, and things are looking brighter.  People are still in the process of fixing the damage that was done as a result of 2008, but there is a light at the end of the tunnel and that is why the consumers rate is going up as well. The fact that some businesses were able to start and survive shortly after a big downturn in the economy, shows that those companies are not a big risk.

Just to make things more clear, keep in mind that banks don't lend to businesses that have existed less than 2 years and are not showing profit on their tax return.And in an upturn this means that its easier for the banks to justify the risk, but that doesn't mean they are taking a leap of faith. Rate of 17.4% includes small businesses that are the best of the best.

What does this mean for other countries?

 The fact that the economy is improving will surely affect the rest of the world. We are all a part of a pond and when something creates ripples in one end, they will surely reach the other sooner or later. Just as the crash eventually reached every part of the world, the same can be expected this time around.

As we all know, USA is a big consumers market and a great opportunity for every company in the world. Those who can take advantage of the improving situation and seize the moment, will surely ripe the fruits of their success in the future

The quoted article can be read here