During the life of most businesses, there will come a time when the owner needs to seek out capital to help the business grow, expand or weather a rough patch. Choosing the source of business funding is not a decision business owners make lightly. In the past, traditional financial sources turn away small businesses and refuse to offer their services. As a result, small businesses have become accustomed to seeking solutions elsewhere.
In the past four years, the ability of small businesses to access capital has improved. The second quarter results from the Private Capital Access (PCA) Index by Dun & Bradstreet and Pepperdine University Graziadio GraziadioSchool of Business and Management supports these changes. However, the survey also revealed that, even though traditional bank loans for small businesses is increasing, it still lags behind middle market companies. As a result, small business owners are still relying on personal assets and personal credit.
According to CPA Practice Advisor, “Thirty-four percent of small business owners transferred personal assets to their business over the last three months, compared to just 13 percent of owners of mid-sized businesses (revenues between $5 million – $100 million).”
The study went on the reveal that (in Q2) small businesses were relying 72 percent on personal savings, 45 percent on personal credit cards and 19 percent on cash from sale of personal assets. Another emerging source of capital is crowdfunding; this process allows businesses to raise funds from an unlimited amount of people across an online platform. In the past three months alone, 19 percent of small businesses utilized crowdfunding. In comparison, only 7 percent of mid-sized businesses used crowdfunding.
In the last three months, 77 percent of small business respondents qualified for personal credit cards for financing purposes. 70 percent qualified for business credit cards, while 68 percent relied on family and friends. Out of all of the respondents, only 38 percent of small businesses qualified for a bank loan. In comparison, 70 percent of mid-sized businesses qualified for a bank loan.
According to the vice chairman of Dun & Bradstreet, “When we began the study four years ago, small businesses were reeling from the effects of the Great Recession. Since then, we have seen steady progress for small businesses being able to acquire the capital they need, although the financing is still predominantly not coming through traditional lenders.”
Alternative lenders are – and continue to be – the popular choice for small businesses. Unlike working with a bank, alternative lenders offer the small business owner speed, convenience, transparency and comprehensive support. With First American Merchant, for example, small business owners will find a fast, hassle-free application process. Upon submitting an application, merchants hear back in as little as 72 hours – if not sooner. From boutique business loans to restaurant financing, FAM has an option tailored to meet your specific needs. To learn more, contact our expert team today.