US Survey shows access to capital still a major problem for small business
August 5, 2014
Let’s face it one of the single largest barriers to starting up a business or even running a small business has to be access to capital. In one of our own member surveys we found that access to capital was at the top of the list of concerns small business start-up’s had next to business planning and the right skills and experience to make the proposition work.
But it has to be the trends study from an actual lender in the field that provides some additional cause for concern.
In August last year, as the US economy was attempting to recover, New York based small business lender OnDeck Capital released some interesting insights. To be clear the report integrated a range of data in an attempt to get a clear view on what was happening out there. That meant that 500 business owners, loan applications from 10,000 entrepreneurs spread across 700 industries were combined to get the following: essentially the three biggest challenges were access to capital, growing sales and dealing with tax.
When business is able to access capital 29% used it for expansion while 16% use it for inventory and equipment purchases. The interesting figure was 39% used for working capital which begs the question if more and more people are sending themselves short by not having enough margin to provide ongoing working capital from the net sale of either their product or services do they have a viable business to start with? More telling is the 64% of those who didn’t get the finance they were seeking and 82% of those who had applied to a bank were denied. When you strip that data back down again 30% of those who needed capital didn’t think it was worth-while applying because they didn’t think they would get approved.
Of course, there is the flip side in the survey where 73% of small business owners believed the economy was getting better with a further 40% looking to increase head count for the period up until the beginning of 2014 – an objective that may well have been missed if they didn’t have access to capital in order to expand the business.
Now, step forward a little to July 15th this year where CAN Capital’s Small Business Health Index found that 61% of small business owners expect business growth within the next 12 months. According to CEO of CAN Capital, Daniel DeMeo “We’re seeing some inconsistency in small business owner reaction from other third-party research around industry optimism in the news, but our Index and customer data show a positive trend when it comes to growth, suggesting small businesses are feeling confident in accessing working capital to expand, purchase equipment and make other improvements,”
Yet the same survey pointed out that “Forty-five percent of small business owners surveyed anticipate needing external capital to run their small business in the next year. However, 65 percent of them say that gaining access to working capital is quiteor extremely challenging. While 30 percent of small business owners say that the easiest way to obtain funding/working capital is applying for a bank loan, more of them (40 percent) have actually been more successful in securing funding/working capital from friends and/or family than from a bank (27 percent).”
In actual fact, access to capital is still just as hard as it was in the survey from OnDeck nearly 12 months earlier as it is today.
As Daniel laments: “It’s interesting, but not surprising, to see that small businesses still perceive the traditional bank loan process as the easiest way to access capital, but in reality, they’re not actually seeing that funding and are going to friends and family instead. One of our goals at CAN Capital for the remainder of the year is to help raise awareness to small business owners that there are other legitimate alternatives available to them for their capital needs.”
So, even though the US economy appears to be in recovery the challenge remains (as it has for many years) and that is access to capital for small business and start-ups remains as it has for some time – undeniably difficult.
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