Small business owners often face hurdles trying to borrow money.

Data from the Federal Reserve shows that 85% experienced financial difficulties in 2021. And during that time, more than half of owners who sought loans were looking to meet their operating expenses rather than to expand their businesses, the report found.

In addition, small business owners are also feeling the sting of higher prices.

Inflation in the country is now running at annual 7.9% for the 12-month period ended February, according to recent data from the U.S. Bureau of Labor Statistics. That's the highest since January 1982. In response, the Federal Reserve is raising interest rates — signaling that cost of borrowing money is going up.

Even in normal times, small businesses struggled to get loans from traditional banks because "the underwriting models are really designed to take a look at like multiple years of historical financials to risk assess whether they can deploy that capital," said Nick Mathews, CEO of Mainvest, an investment platform that aims to connect small business owners and investors.

"The banks don't really know how to reconcile their traditional models to this crazy level of variability," he said about why loan applicants are more likely to get turned down or receive less money compared to before the pandemic.

"The underwriting models that banks use are designed on consistency, and so when you lack that consistency for multiple years, it makes it really challenging for large institutions in order to adapt to that," Mathews added.

Original article: https://finance.yahoo.com/news/small-businesses-hit-to-the-throat-when-applying-for-bank-loans-195250054.html