Banks are in the business of managing and lending money. Small businesses are geared towards providing products and services to the community. From a core basis, the two operations seem to be made for each, a perfect match if it were. Yet, for some reason, small firms and large banks have a huge divide between one another that, according to the Financial Times, has led to a $2 trillion gap.
The problem stems from the perceived rate of success for small businesses. After the Financial Crisis of 2009, banks are alot more risk averse and, as such, are not willing to support small businesses like the days of old. According to the Small Business Association (SBA), the high rate of small business failure isn’t necessarily true. “The SBA states that only 30% of new businesses fail during the first two years of being open, 50% during the first five years and 66% during the first 10.” Yet, banks refuse to make it a priority to support the backbone of American society.
For banks prior success matters, if your company is generating 6 figures in annual revenue, you can expect to see some type of potential support versus small businesses just starting out. This is a huge problem as the biggest jump many small businesses make is from the mid to high 5 figures to the low to mid 6 figures. Getting support before you make the jump is crucial, but due to banking rules, you usually have to look for funding in the middle of your revenue increases which in turn can slow your growth.
Yes there are many fintech organizations cropping up all over the place which is a major step in the right direction, but those are for the much small organizations looking for $5,000 – $50,000 – ish range. Not to mention no fintech company has built up the cache of a Paypal just yet to be the premier offering. So for the millennial it’s just being caught in a weird place if you have a growing company with a bank afraid of supporting you.
Unfortunately, for now, the only solution is to stop running your business for a moment and find funding, or grow naturally. A terrible position to be, but the only option. Large banks do not understand the normal small business but hopefully programs will expand to cater to them one day.