• Calla Norman

Why Can’t I Get a Small Business Loan?


Rachel, owner of Little Spark Refill Shop, HOneycomb alumni


One of the frustrations that small business owners face - especially young businesses who are growing rapidly - is the fact that it’s increasingly difficult for them to get a small business loan from a typical source, like a bank. Here’s a rundown of reasons why banks reject small business loans, and what you can do about it.


It’s not your fault - bank lending criteria is getting stricter by the day


There’s a trend that’s been sweeping the nation for decades of small community banks - who traditionally were a primary source of lending capital for local small business - shutting down and consolidating. Since the 1980s, there’s been a 65% decrease in banks in the United States.


This means that there are less opportunities for small businesses to get loans from a bank. This is because there are no relationships formed between big banks and small businesses, not the kind of relationships that were built out of the community banks. For the big banks, it’s really all about the bottom line, and they’ll be less likely to lend smaller amounts of money or lend to businesses they deem risky.


Here are some of the reasons why big banks are likely to reject small business loans:


Your business is too young


Most banks won’t lend to a business that’s been around for less than two years - even if the business can prove it’s growing rapidly and has a solid financial foundation.


One example of this is Little Spark Refill Shop, located in Cleveland. Owner Rachel Regula had a background in finance, and knew that when she was ready to expand her business after only being open for a few months that it would be nearly impossible for her to find a bank loan. So, she decided to crowdfund a loan with Honeycomb Credit, and raised $65,950 from her community to open her shop’s second location.


“I was like, I get that,” says Rachel, about a bank possibly rejecting her for a loan. “But like, we're doing so well in sales - why won’t the bank believe in me, because everyone else does! So then when Honeycomb came back with my offering statement, I was like, this is a dream. Like, is this reality right now?”


Your business is in a “risky” industry


Unfortunately, the past couple of years in a pandemic has shown that some industries aren’t as solid as we once thought. Now, banks are less willing to invest in vulnerable industries like restaurants and in-person retail, because who knows when the next lockdown might be, and where the revenue they’re counting on might go?


Pandemic aside, the restaurant industry is also notoriously difficult to fund. “Banks don’t fund restaurants,” says Neil Blazin, owner of Driftwood Oven in Pittsburgh. Neil raised $150,000 from his community with his Honeycomb campaign, which helped him expand his booming sourdough pizza restaurant and bakery.


“Most of the investors who invested in our campaign were from right in Pittsburgh, so that was pretty great,” says Neil. “ I think Honeycomb did a great job of pulling investors in Pittsburgh into Pittsburgh businesses. There's a face behind us, not just a hedge fund or a 401k.”


Your business isn’t in the “right” neighborhood (yikes)


Sadly, bank lending isn’t immune to systemic racism. Even today, small businesses located in areas with predominantly minority residents find it more difficult to find small business loans from banks. Even if a minority-owned business’s income is similar to a white-owned businesses, it’s more likely to be denied for a loan.


Black business owners have it incredibly difficult - especially on the lending front. Only 3% of SBA 7(a) loans were approved for Black-owned businesses. Furthermore, in the bank itself, Black lendees were more likely to experience discrimination and microagressions when looking for a loan for their business.


You’re a nontraditional business owner


Okay really, what business owner is “traditional” anyway? What this means is that banks often want to see that an entrepreneur is putting everything they have into a business - time, money, labor - before they lend to them. But for many business owners looking for capital, they might not stack up to a bank’s expectations.


Take Darren Carter, for example. He started his barbecue business, Carter’s BBQ, as a retirement project, and the fact that he didn’t operate as much as the bank wanted him to was one of the reasons his bank loan was denied. The bank he was trying to get a loan from wasn’t looking at the full picture - they just saw the numbers they didn’t like, and didn’t understand the person and the context around them.


Darren chose to crowdfund his project - a new barbecue smoker and trailer - with Honeycomb and raised $30,000! “I couldn't get a loan from a local bank, and when I met with Honeycomb, I told them, ‘Look, I don't want to go through this process if I'm going to be denied again,’" says Darren. “Honeycomb ran the numbers, saw the plan, saw what we were trying to do. What was key was that Honeycomb saw us.”


Just because a bank says no, doesn’t mean you’re out of options


Your community sees beyond the bottom line, and wants to invest in your business, even if a bank won’t do it. Learn more about running a Honeycomb loan crowdfunding campaign by filling out the form below!