Despite the numerous new funding methods available for small businesses and startups, a recent study has revealed that small businesses are still struggling to access working capital. In fact, SME access to traditional bank loans is rising, yet small businesses continue to lag behind mid-sized businesses. As a result, small businesses rely on personal credit and networks.
According to the Private Capital Access Study by Pepperdine University Graziadio School of Business and Management and Dun & Bradstreet, the small businesses in the study are defined as having revenues of under $5M, while mid-sized businesses are $5M to $100M. Since Q2 of 2012, mid-sized businesses have experienced a 13% increase in access to capital. Small businesses in Q2, on the other hand, were found to rely personal savings (72%), personal credit cards (45%), and cash from sale of personal assets (19%).
The findings of the study also revealed that 77% of small businesses have qualified for personal credit cards in the last three months, 70% qualified for business cards and 68% chose to rely on family and friends. Out of all of the data collected, the difference between the number of small businesses and mid-sized businesses that qualify for business loans is telling – 70% of mid-sized businesses qualified, while only 38% of small businesses qualified.
The study also revealed crowdfunding as an emerging, major alternative lending source for small businesses. 19% of small businesses utilized crowdfunding during Q2, compared to 7% of mid-sized businesses. Jeff Stibel, vice chairman of Dun & Bradstreet, commented on the study (started four years ago).
“…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. It will be interesting to see how the new option of crowdfunding will affect small businesses as our study has shown more eagerness to use that option as compared to their mid-sized counterparts.”
Where the “big banks” have failed, small businesses are finding solutions elsewhere – the majority of which are actually faster and more comprehensive. These sources of alternative lending are often more tailored to meet the specific and unique needs of the businesses. In light of the fact that the study found 56% of small businesses “indicated a desire for financing in the next six months”, the hope is that more businesses will discover and utilize these alternative lending options for growth and expansion.
For more information on our business funding options here at First American Merchant, contact our expert team today. The application process is simple, fast and hassle-free. Once approved, businesses receive their funds in as little as 72 hours.