During specific times, it’s easy to get mad at banks and other lending organizations for keeping the vaults locked tight. Given the plight of small businesses during economic downturn, these organizations may impose a stricter regulation on how specific loan should be distributed. Financial institutions may also consider specific government regulations that forbid loan to specific companies. Loan restrictions could also prevent consumers and debtors from experiencing crushing debts. During and after financial crisis, banks often sit on tons of junk commercial property loans, many of them are approaching or already in default. This makes banks to become extremely careful, because much of their efforts are to regain their money. The problem could be solved too slowly as the recovery process barely inches forward.

Why Banks Are Reluctant to Provide Loan During Financial Recession

Even during the peak of financial crisis, banks and other lending organizations may continue to see high demands. However, they would provide loan only for highly qualified borrowers. If a business is very vulnerable to recession with substantial drop in income, banks may refuse to provide loans. Many small business owners see their credit scores and personal savings crash and burn. In this situation, they require extra funding and banks will investigate the reason why additional funding is needed. If the business lost money yesterday, they may lose again tomorrow. This is the reason why banks may be reluctant to provide additional funding. However, businesses will always seek ways, so they can survive. While the condition may be bleak for our business, we may need to look for other funding alternatives, instead of relying only on typical lending organizations.

In order to increase our chance of getting a loan, we should understand lending criteria implemented by banks. When the recession starts to strike, we should be fully prepared for it. We need to improve our internal situation to lessen the external effects. If we do this, it is quite possible that we will be able to better manage the overall effects of financial recession. Whatever we do, we should look for ways to improve the cash flow position of our business. We should be able to do this by reducing costs, while increasing revenue could be harder to do during a financial recession. Our personal credit score should remain high and it is a good idea to avoid borrowing on credit cards and make late payments. Everything we do should be intended to make our business works well.

We should be able to demonstrate to lenders that we are able to improve our business situation properly. We should be able to shed our fear and brace the financial recession with confidence. If we have near zero sales regardless of what we do, then it’s a good idea for us to significantly reduce the operation of our business. This is a better solution than letting our company to bleed money away. This may seem like a cruel thing to do to our employees, but if our business could survive the financial recession, they will surely be hired back.