Small-business owners prefer bank loans over other forms of financing, but banks remain reluctant to lend due to pressure from their regulators, according to a survey released Monday by the Graziado School of Business and Management at Pepperdine University.
Roughly 48% percent of the more than 1,200 business owners surveyed said that they turn to banks first when seeking financing, followed by loans from friends and family (21%) and private investors (11%.)
And though the majority of business owners have not applied for bank loans in the last six months, 60% of those that have said that their applications were denied.
Banks blamed the high rate of denials on the regulatory climate. Sixty-one percent of the 72 banks that responded to the survey said they declined loans they otherwise would have accepted because of increased pressure from their regulators.
Dr. John Paglia, the lead researcher on the bi-annual report on capital conditions for small businesses and an associate professor at the business school, said that privately held businesses favor bank loans because they are typically the cheapest form of capital and because banks are generally passive investors.
But, he added, banks "report feeling increased pressure…to avoid making risky loans." The result, he said, "Is that small business owners are left without access to capital."
The survey also found that business owners are turning to friends and family for financing. Of those denied for bank loans, 71% said that they did not then not call on friends or family.
That's in sharp contrast to the report six months ago in which 35% of respondents said that they were currently using friends and family as sources of financing.
