Cactus Cash

How Tightened Lending Standards Affect Small Business Loans

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According to the Federal Reserve’s quarterly Senior Loan Officer Opinion Survey (SLOOS) released last month, more lenders have stiffened their standards in the wake of increasing turmoil within the banking sector. The survey report states that in the commercial & industrial (C&I) lending category “tightening was most widely reported for premiums charged on riskier loans, spreads of loan rates over the cost of funds, and costs of credit lines.”

When banks tighten their lending standards, small businesses have a harder time securing small business loans which in turn makes it difficult for these businesses to expand, make payroll, and to help grow the economy as a whole. In this blog post, we will explore how tightened lending standards can adversely affect small businesses and the overall economy.

Limited Access to Capital

Tightened lending standards make it difficult for small businesses to obtain loans or lines of credit. Financial institutions may require higher credit scores, more collateral, or stricter documentation, making the loan application process more arduous and time-consuming. As a result, many small businesses, especially those with limited assets or weaker credit histories, find themselves excluded from traditional lending options.

Slowed Business Growth

Access to capital is crucial for small businesses to expand, invest in new equipment, hire additional employees, or explore new markets. When lending standards become stricter, these growth opportunities become more elusive. Small businesses may be forced to delay or abandon plans for expansion, which can lead to stagnation and lost potential for economic development.

Reduced Innovation

Small businesses are often the source of innovation, introducing new products, services, and processes to the market. However, tightened lending standards can stifle this creativity. Without sufficient access to financing, small businesses may struggle to invest in research and development, limiting their ability to innovate and compete with larger, better-funded corporations. This not only hampers the growth of individual businesses but also hinders overall economic progress.

Job Creation and Retention Challenges

Small businesses are significant contributors to job creation and employment opportunities. According to the U.S. Small Business Administration, small firms accounted for 64% of net new job creation between 1993 and 2011. However, tightened lending standards can impede the ability of small businesses to hire new employees or retain existing ones. Limited access to capital can lead to downsizing, layoffs, or reduced working hours, negatively impacting the livelihoods of individuals and communities.

Ripple Effect on the Economy

The impact of tightened lending standards on small businesses extends beyond the immediate realm of entrepreneurship. Small businesses form an intricate network, relying on each other for goods, services, and support. When one business struggles due to limited financing options, it can affect the entire supply chain and ecosystem. This can lead to reduced consumer spending, lower tax revenues, and an overall slowdown in economic growth.

Alternatives to Small Business Loans

Small businesses play a vital role in driving economic growth, creating jobs, and fostering innovation. However, tightened lending standards present a significant challenge for these enterprises, limiting their access to capital and hindering their growth potential. If your small business has currently felt the effect of the tightened lending standards, consider an alternative to small business loans. 

A merchant cash advance (MCA), or revenue-based financing, gives small businesses quick access to cash when they need it. Apply for a cash advance with Cactus Cash and keep your small business thrive. Applying is easy – the requirements are: 

  • Must have been in business for six months
  • Must have a business checking account 
  • Credit Score above 550+ (soft inquiry only so credit score is not affected) 

To apply, visit to get started.