Access to Capital Remains a Problem for Small Businesses
Sep 7th, 2011 @ 1:19 PM by Amber Nelson
In a new survey, small businesses made it clear that getting the loan funding they need is still a major problem in today’s economy.
The survey of about 7,502 small businesses with less than $5 million in annual revenues, conducted by Pepperdine University’s Private Capital Markets Project, found that one out of every four owners says that access to capital is their company’s greatest obstacle. Other major concerns include economic uncertainty (one out of five) and taxes and regulations (one out of four.)
Credit for these businesses apparently remains tight. Less than half (44.5 percent) of the 1,667 small companies that applied for bank loans in the past year obtained their desired funding. Most businesses turned to other places for that needed capital: 78.3 percent borrowed it from friends and family, while 63.1 percent charged up their credit cards and 39 percent got funding from angel investors.
“Many businesses are now questioning whether contacting banks for credit is worth the time invested,” said John Paglia, associate professor of finance and lead researcher of the project as quoted in the OC Register. “Taking 16 to 24 hours away from minding the store to pursue a loan can be extremely detrimental to any small business, especially when the odds are not in their favor.”
“If we can get credit flowing and hiring picks up, actions such as incentives that support the pursuit of advanced degrees and workforce retraining would set off further creation of much needed, higher-wage jobs,” he added.
In the survey, businesses also chimed in about the best way to stimulate job creation. More access to capital was the answer from 35 percent; 23 percent said tax incentives would do the most good; and 18 percent believe more regulatory reform would help.
“Small businesses should be a top consideration as the President and other legislators seek to jump start job creation,” Paglia said. “Establishing market confidence, improving access to capital and improving regulatory and tax structures are the most direct route to end the Great Recession and spark the Great Recovery.”
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.
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It’s really difficult to get a loan in these economic times.
Companies like plurafinancial.com and prosper.com are great options for SMBs in this situation because they match you with the best lenders for your business. Owners tend to give up when their local bank says no. Fact is, many small community banks are frozen because their capital ratio’s prohibit them from putting more $ out the door.
Owners need to look around, like dating…don’t give up because you get rejected by the first person you ask. You need to find the most appropriate bank for yourself. If cash is tight but you have a lot of assets, find an asset-based lender. If you’re a consultant generating lots of cash, find a cash flow lender. You need to cast a wide net. If you don’t have time, use “matchmaking” services like the one’s mentioned above. Do not give up, you will get out of the process what you put into it.
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