Majority of business owners turn to banks for commercial loans

6/16/2011

When small business owners need money to sustain their companies, the majority seek commercial loans from banks rather than family or private investors, a new report from Pepperdine Private Capital Markets Project indicates.

Nearly half of the entrepreneurs polled (48 percent) said they target financial institutions as their primary source of loans, while only 21 percent leverage friends or family and 11 percent turn to private investors. Moreover, many don't even consider their friends or family an option - 71 percent of respondents said they wouldn't turn to this source even if they were denied loans by banks.

"Privately held business owners favor bank loans among all types of capital because they are typically the cheapest and banks are generally passive investors,” said Dr. John Paglia, lead researcher of the Pepperdine Private Capital Markets Project. "Banks on the other hand report feeling increased pressure from regulators to avoid making risky loans and because of that they are denying loans that otherwise would have been accepted."

Because of the tighter lending environment, many entrepreneurs are feeling less optimistic about their prospects. According to a recent report from the National Federation of Independent Businesses, small business confidence declined for the third-straight month in May.