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What Types Of Businesses Struggle The Hardest To Secure Bank Loans?

For any small business owner, securing a business loan is a critical step. The objective to grow, expand or simply manage day-to-day operations is met with success only when there is enough money to invest. However, not all small businesses have equal access to financial resources. Many find themselves grappling with the complexities of the lending landscape.

What types of businesses have the hardest times securing bank loans?


Launching a new business is an exciting endeavour. However, quite obviously, a start-up business lacks an operating history. Because of this, there is a struggle to demonstrate an ability to repay a bank loan. This is a primary concern for banks. As well, traditional banks tend to favour businesses with track records of profitability. Of course, this is something most start-ups can’t provide in their early stages.

“Most start-ups and early stage businesses don’t have hard assets like equipment or a building to offer as collateral for a loan,” informs the Business Development Bank of Canada, “That means a banker will have to decide based on his or her assessment of your ability to deliver on your business plan.”

Sole proprietors and freelancers

Banks tend to prefer lending to businesses with multiple employees and established financial structures. For sole proprietors and freelancers, the lack of a formal business structure or a dedicated team can lead to scepticism from lenders. Banks may also be concerned about the inconsistency of income that often characterizes these businesses, making it harder to assess their capacity to repay loans.

As Lydia Roth explains on, “traditional banks view sole proprietors as high-risk because there is a greater chance the loan will not be repaid due to lack of income, death, or incapacitation.”

Restaurants and food services.

The restaurant and food service industry is notorious for its high failure rate. Banks are well aware of this fact and tend to approach loan applications from these businesses with caution. The high operating costs, thin profit margins and competitive nature of the industry make restaurants and food services a risky proposition in the eyes of lenders.

“Lenders, in general, like to see diversity in a business’s clientele as opposed to the same customers,” adds David Goldin for The Business Journals, “For example, a local pub or restaurant that relies mainly on its ‘regulars’ for steady income can present a perception problem with traditional banks.”

Seasonal businesses.

Businesses with seasonal revenue patterns, such as ice cream stands, holiday-themed shops or ski resorts, face significant hurdles when seeking bank loans. Lenders typically prefer businesses with stable, year-round income streams to ensure loan repayment. Seasonal businesses often find it challenging to convince banks that they can meet their financial obligations during off-seasons.

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