Turned down for a loan, business owners look to family and even crowdsourcing to get money to grow

abcnews.go.com:

Among the many challenges small businesses face as they try to grow these days, getting a loan is right near the top

NEW YORK — NEW YORK (AP) —

Among the many challenges small businesses face as they try to grow these days, getting a loan is right near the top.

Banks big and small have tightened lending standards as the Federal Reserve hiked up interest rates the past two years. The collapse of three regional banks this spring and the possibility of stricter regulations have likely made some banks more cautious as well.

So, business owners are having to make sacrifices, from turning to crowdsourcing instead of lenders, borrowing from family or friends, or simply forgoing expansion plans that would have been funded by more capital.

According to the Federal Reserve, which surveys senior bank loan officers quarterly, about 49% of banks said they had tightened lending standards for small firms – those with less than $50 million in annual sales – during the July to September quarter, up from 22% in the same period last year. Loan officers cited an increasingly uncertain economic outlook as one reason for the tightening.

Biz2Credit data tells a similar story. Back in June 2022, big banks approved 15.4% of small business loan applications. The figure has dipped every month since and was at 13% in October. At smaller banks, about one in five funding requests were approved – far from the 50% approval rate pre-pandemic.

Meanwhile, interest rates have jumped. The average interest rate paid on short term loans was 9.1% in October, up sharply from 6.7% in the same period a year ago, and 4.9% the year before that, according to the National Federation of Independent Business.

All those factors have added up to a grim environment if