The top of mind question for many business owners is “where do I get the funding I need?” In recent years small businesses are even more crunched for cash -- with drops in demand and traditional banks in crisis.
- Credit is the fuel that keeps small businesses running. Small businesses need access to credit (especially in a down economy) for day-to-day operations, repair of existing machinery and facilities and inventory.
- Banks are still a critical source of funds. While small businesses still rely heavily on bootstrapping (using their own savings or assistance from friends and family), traditional outside credit sources are still an important chunk of the financial pie. Angel capital, venture capital and other sources make up less than 10% of small business financing.
- But small business owners say access to credit is a problem. 90% of respondents agree the availability of small business loans is a problem, and 60% have faced difficulty themselves when trying to obtain loans that would grow their businesses.
- Smaller lenders are really the ones lending to small businesses. Big banks (institutions with $10 billion+ in assets) reject about 90% of the loan applications received. Community and regional banks and other smaller lenders, however, approve small business loan applications at a rate of about 45%. And alternative lenders (such as receivable financers, merchant cash advance lenders, Community Development Financial Institutions (CDFI), microlenders, and others) provide credit over 60% of the time.
- Financing costs owners significant time and money. It typically costs business owners 5-6 months and $2,000-$20,000 to get a loan.
- Owners would like to see smart regulatory reforms. Small business owners support making it easier for community banks and credit unions to lend more and for more reform and regulation of credit cards.
What has been your experience with getting the capital you need? Share in the Comments section below.