Since a lot of folks (primarily policymakers) seem to think that small businesses don’t need anything at all but access to debt financing in order to thrive, it’s interesting that we have a couple of highly relevant bits of nongovernmental research on the subject this month.
But, if all small business owners need is access to debt financing, then it looks like we might be in trouble.
Financing, From a Slightly Different Angle
MultiFunding’s National Lending Snapshot for the first quarter of this year finds what it calls a “national collateral crisis” underway. According to its findings, MultiFunding divided small businesses into three groups: A) Asset-Rich Borrowers (31 percent of small businesses, in this survey), B) Moderate Borrowers (47 percent), and C) Non-Lendable Borrowers (15 percent).
The A borrowers should have no trouble getting bank financing and getting great rates, because they not only have the credit rating and the cash flow, they also have assets with which to secure loans.
The B borrowers have the credit and the cash flow, but they lack collateral and would have to turn to alternative lenders (factoring, unsecured loans with higher rates, friends and family, etc.).
The non-lendable borrowers, or C borrowers, are just what they sound like. Their only option would be microlenders and, even then, the amount they could borrow would be severely limited (most microlenders cap loans at $35,000 to $50,000).
MicroFunding concludes that we are facing a collateral crisis among small business owners. The challenge is particularly acute among small businesses earning less than $1 million in annual income but, no matter how you slice it, this survey suggests that a whopping 62 percent of small business owners would be unable to qualify for a bank loan right now (and only 20 percent would qualify for an SBA loan).
“Research showed that, in today’s economy, collateral is a key factor in determining interest rates. Credit and cash flow, previously important in assessing a small businesses’ credibility, have taken a backseat to equity in their balance sheet.”
A new study by the Pew Charitable Trusts has found that American households receive more than 10 million offers per month for business credit cards, and the majority of those cards have “potentially harmful terms that would not be legal on those labeled for consumer use.” That’s because consumer credit cards fall under the jurisdiction of the Credit CARD Act of 2009, while business credit cards (the primary form of financing available to most microbusinesses) remain unprotected.
(I know you’re busy but, if ever there’s a reason to contact your Congressional representatives, this is it. Make a quick call, drop a brief letter, let them know how this can affect you. Your voice really does make a difference!)
On a Lighter Note …
Looking forward to your summer vacation? According to a survey released by American Express OPEN in May, you are in a slight minority if you plan to take a break this summer. Fewer than half (46 percent) of small business owners are planning summer vacations this year.
Of course, they didn’t ask how many of us are planning fall vacations or year-end holiday vacation. (I usually take my break during the last two weeks of the year.) So this might not present us with a completely accurate picture of the small business vacationing public. But it’s still interesting.
Those small business owners who plan to pass on the summer vacation this year say they’re too busy to get away (37 percent) or cite affordability (29 percent) as the top reasons they’re not vacationing. Those who do get away still worry about the kind of service their customers are getting (33 percent) and about missing attractive business opportunities when they are on vacation (24 percent).
Of course, another 40 percent don’t worry about anything at all. Then again, 68 percent of them are checking in while on vacation, and almost half of them (49 percent) check in at least once a day.
Which goes to show that, even on vacation, it’s tough for small business owners to really relax and get away from it all.
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