Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Aug 15, 2012

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As our economy continues its so-called recovery, more and more small businesses are finding it difficult, if not impossible, to find financing.

Allison O’Neil, founder of the toddler clothing store, Bundle, knows that fact all too well. She explained the challenges she faced when trying to find money for her startup in 2008 to the Federal Reserve Board of New York.

“I had great credit. I had basically four times the amount of a loan I was looking for in my brokerage account and they didn’t care. They were just like, ‘We’re not taking any risks on startups,’” she said.

That fear of risk may be contributing to the overarching trend of fewer small business loan originations.

According to a recent report by the Small Business Administration, the number of small business loans originated in the United States declined by 5 percent last year. Of those that were originated, the dollar amount of those loans declined by a full 7 percent.

Additionally, the NY Fed surveyed 544 different sources and found that a full 37 percent of all business loan applicants were denied, and another 36 percent were approved for only part of the amount they requested.

In fact, only 13 percent of all small business loan applicants received the full amount of money they sought.

This lack of financing accessibility has discouraged entrepreneurs and prompted more than 57 percent of company owners to rely on their business’s earnings as a source of financing. 54 percent rely on their own personal wealth for business financing, and only 11 percent say they would turn to a bank for a business loan.

Due to traditional banks’ failure to provide entrepreneurs with the capital required to begin and maintain a company, other financing avenues are prospering.

Crowdfunding is quickly becoming a favorite source for start up financing amongst younger generations, and non-traditional business loan lenders, such as peer-to-peer lending services, are becoming commonplace in the industry.

Because traditional lenders are failing to meet demand, they’ve opened the door to eager competitors. Unfortunately for banks, that door is likely permanently open as these alternative sources for company loans don’t appear to be fading away anytime soon.