Finding capital is one of the hardest things small and medium size business entrepreneurs have to do. Since 2008, when the biggest of the big banks brought our economy to its knees, the smallest of the small-business community is still strapped for cash — despite the fact that larger small businesses, medium-sized businesses and larger business are having an easier time as restrictions ease up, according to the Federal Reserve and the National Small Business Administration.
Small to Medium size businesses today are forced to grow on credit. Unfortunately, not only is credit hard to come by but many business owners have been hit so hard by the last five years of tight money, they might not even really be “credit-worthy” — or should we say as credit-worthy as they might have been just a few years ago. Plus it is so hard for start up businesses to even establish credit within the first three years in operation.
Last month, Pepperdine University published its Private Capital Index for the Third quarter of 2013. The big news in the report is the difference between where these entrepreneurs are looking for money and where they are finding it. It’s not really a surprise, but here is where they are looking:
59 percent are looking at the bank
57.2 percent turn to business credit cards
49.9 percent access their personal credit cards
48.4 percent sought out a personal loan
44.2 percent went to friends and family
Most of the business owners visit the big national banks. After all, that’s where they have their checking account, maybe a credit card, why wouldn’t they go to the national bank? Unfortunately, they don’t leave the bank with a loan — as many as 90 percent of them leave without a loan. So where are they finding the money they need?
71 percent found success with friends and family
58 percent with their personal credit cards
57 percent used trade credit
54 percent used business credit cards
27 percent found success at the bank
Although 27 percent is a little better than the 10 percent I suggested, that still means that most business owners are going to leave the bank empty-handed. Not a ringing endorsement when you consider the TV and radio ads we hear every day claiming this bank or that bank is the “small business” bank.
The next option most business owners choose to take is going to the local bank or Credit Union. Having worked in the Credit Union for many years in the past I have seen several people walk out with no hope. Credit Unions however are getting the message that small businesses are a good investment for them. Often times Credit Unions will even partner with other Credit Unions to pull funds together for small commercial cases. Still most Credit Unions do not have a tolerance for lines of credit over $15,000.
Local Banks however are getting smarter. Many of them have started adding other services but all choices are still made based on a clean credit score and often will not grow with you. Since businesses have been funding their payroll and suppliers on extended credit and credit cards, those credit scores are looking rough. Plus having a fixed line amount limits your company on what jobs you can bid on.
What have been left out of these statistics are alternative banking options. When business owners get told no they run to family and friends. Even worse they put everything on a high interest credit card with huge compounding interest and accruing more debt. There is actually other steps you can take between begging family or going to the local loan shark. There is crowd sourcing using the web to sell off equity in your company to individuals. Then you can get advances on credit cards. Best of all you can try Asset Based Lenders.
SouthStar Capital is an Asset Based Lender in the Southeast United States. We will work with your company to create a working capital solution specific to your needs. We provide Accounts Receivable, Purchase Order, and Equipment Financing. We can help get you the cash flow you need to pay payroll. Money to bid on larger jobs and the equipment you need to grow your business. If you have questions about Asset Based Lending please give us a call at 1-800-763-3021 or check out our website.