Monthly Archives: June 2016

Loans Still Pose Challenge for Small Businesses

unduhan-35While the ability of small businesses to obtain capital has improved in recent years, getting a traditional bank loan is still a tough obstacle, a new study finds.

Research from Pepperdine University’s Graziadio School of Business and Management and Dun & Bradstreet revealed that over the last four years, there has been a 13 percent increase in access to capital for small businesses. However, most are getting that money from personal assets and not banks or online lenders.

The study revealed that only 38 percent of small business respondents qualified for a bank loan within the last three months, compared with 70 percent of mid-size businesses. While that’s up from 30 percent in the first quarter of the year, it is down from a four-year high of 46 percent in the third quarter of 2014.

When it comes to alternative lenders, small businesses had the most success with merchant cash advances. The research found that 41 percent of the small businesses surveyed were able to obtain a merchant cash advance, compared with just 20 percent who were able to get a regular loan from an alternative lender.

Most small business owners are relying on their own personal assets to help fund their business. Specifically, more than 70 percent of those surveyed used personal savings, 45 percent used personal credit cards and 19 percent used cash from the sale of personal assets.

 Crowdfunding is growing increasingly popular with small businesses. The research found that 19 percent of small businesses that sought financing in the past three months used crowdfunding as a funding source, compared with just 7 percent of mid-size businesses.

Jeff Stibel, vice chairman of Dun & Bradstreet, said when they began conducting these studies 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,” Stibel said in a statement. “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.”

Although access to capital improved over the past three months, the number of small businesses needing it declined. Overall, demand for capital from small businesses dropped from 38 percent in the first quarter of the year, to 32 percent in the second quarter.

Of those the small businesses that didn’t try to access capital over the past three months, 49 percent said it was because they had enough cash flow in place, while 24 percent indicated they already had sufficient financing. However, 16 percent didn’t apply for financing because they were worried they would be rejected, 12 percent shied away because of the weak economy and 7 percent said they were holding out for cheaper financing rates.

“Business borrowing habits suggest owners may not see a need for an immediate infusion of capital,” said Craig Everett, an assistant professor of finance and director of the Pepperdine Private Capital Markets Project. “However, these findings suggest business owners are still feeling the lasting impact of the recent recession and remain skittish about the future, as reflected in an abundance of caution when it comes to the economic environment.”

DO You Know That Loan Myths Busted

Obtaining a loan for your small business is no easy feat, but it doesn’t have to be an insurmountable challenge. Small business lending experts agree that the best way to avoid trouble is to prepare for the challenges that the application process may present.

“A lot of the frustration around obtaining small business financing can be eased by doing your due diligence,” said Michael Adam, founder and CEO of Bankmybiz, a site that connects business owners with business funders. “Be prepared, and have all your documents ready to present to lenders.” [See Related Story: Small Business Financing Trends: What You Need to Know]

Myth No. 2: You have to have perfect credit to get a small business loan.

Although low credit scores might have precluded you from getting a loan in years past, today’s lending environment is more open to subpar credit ratings.

“While traditional banks may be restrictive when it comes to obtaining credit, there are alternative options,” said Michael Kevitch, president and founder of Small Business Funding.

Alternative lending sites such as Small Business Funding tend to base lending decisions on the financial realities of a business rather than the financial history of business owners. Specifically, Kevitch said, alternative lenders take a close look at business performance, industry type, time in business and cash flow before handing out a loan.

Traditional lending institutions have been a mainstay of small business funding for many decades, and still are in some industries. But they are not the only sources of financing.

For business owners looking to borrow a relatively small sum (between $5,000 and $250,000), getting a bank loan is likely to be more trouble than it’s worth, Kevitch said. However, he noted that bank loans may still be appropriate for business owners who need to borrow a large amount of cash, over a long period, and still get a low interest rate. Kevitch advised business owners to make sure they fall under those categories before applying through a bank.

Kevitch noted that alternative lending sources often provide faster approvals; sometimes, businesses can obtain access to the funds in as little as seven days, he said.

Myth No. 4: The worst way to obtain a loan for your business is through a bank.

Bank loans may not be the best option for every small business, but they’re far from the worst funding option out there. In fact, for established businesses looking to grow at a moderate rate, traditional bank funding is generally a great option, Adam said. It’s when a business doesn’t fit those criteria that business owners should consider shopping around.

“If you are a younger company, pre-revenue or low revenue — but plan to grow very quickly due to the industry that you’re in (e.g., health care, IT or software consulting) — then a traditional bank loan may actually limit your growth,” Adam said.

To decide whether a bank loan is right for your business, research both traditional loans and alternative funding sources. It’s also important to know your business inside and out.

“If you anticipate steady growth over the next few years, then a traditional bank may be best,” Adam said. “If you are growing like crazy and you know you will need to keep increasing your loan size by large increments each quarter, then entertain a nonbank lending partner, as banks may not be able to keep up with your needs.”

Myth No. 5: The more money you ask for, the less likely you are to be approved for a small business loan.

You may find this myth floating around online forums and perhaps even hear it from well-meaning friends and family members. It’s all right to ask for money, nonexperts will tell you; just don’t ask for too much. While this might be reasonable advice in personal circumstances, there’s not much truth to it in the business world.

According to Jess Harris, content and social manager of business lender Kabbage, a working paper from Harvard Business School revealed that banks actually prefer lending larger amounts because they make more profit from large loans in the long run. In turn, banks are cutting back on smaller loans.

Evan Singer, general manager at online Small Business Administration loan program SmartBiz Loans, said a business should apply for the amount it needs — no more and no less. He recommends considering both how much money you really need to grow your business, and how much money you can afford to pay back every month.

“Make sure that you have cash flow to make your loan payments,” Singer said. “That’s the biggest thing that a [lender] is going to check — that [the business owner] can actually afford to make their loan payments.”

Myth No. 6: The most important thing you need in order to obtain a small business loan is a good business plan.

There are multiple perspectives on whether a traditional business plan still has a place in the loan application process. Some funding experts believe that the method of using a business plan to measure the likely success and fundability of a business is a bit outdated. Singer said that although traditional banks might still require business plans during the loan application process, online lenders typically don’t look for it.

And although Adam agrees that most lenders won’t require a full-fledged business plan, he does think that having a plan at the ready is always a good idea.

“Every business should have some sort of business plan,” Adam said. “It’s just a good practice to anticipate growth, set milestones and keep yourself accountable. If you don’t have one, create one. You’ll be glad you did in the long run.”

Myth No. 7: The most important factor to look at is the interest rate.

Although interest rates are an important aspect to consider when choosing a lender, there are many other factors to keep in mind. Harris suggested asking how much it will cost, what the terms of the loan are, how soon you need to repay the money, and what you can use the loan for.

Affordable Cities for Startups

For the second year in a row, cities in the South give entrepreneurs the best chances to keep their startup costs low, while big cities remain among the most expensive places to start a new business, new research finds.

The study from SmartAsset revealed that nine of the 10 cheapest cities to start a new business in are in southern states, including three in Tennessee.

To find the cities with the lowest startup costs, SmartAsset collected data on the typical costs of starting and running a business in 80 of the largest cities in the United States. They calculated the total expected startup costs over the first year of operation for a company based on five factors

  • 1,000 square feet of office space.
  • The cost of gas and electricity for a 1,000-square-foot office.
  • The average cost of filing fees for either incorporation or filing as an LLC.
  • Legal and accounting fees.
  • Payroll costs for five full-time employees, earning the city’s median annual salary.

Topping this year’s rankings of the most affordable cities for startups is Chattanooga, Tennessee. The city is attractive for entrepreneurs looking to save money because of its relatively low costs for office space and employee payroll. The research shows that it would cost $225,442 for a business owner with five employees and a 1,000-square-foot office to run a first-year startup there. That’s up about 2 percent from a year ago when the costs were $221,000. [See Related Story: 15 Important Startup Lessons for New Entrepreneurs]

“If you decide to start a business in the Gig City, you’ll be in good company,” the study’s authors wrote. “Many startups and accelerators operate there, including the Lamp Post Group and Gigtank 365.”

Overall, the 10 most affordable cities to launch a startup in are:

  1. Chattanooga, Tennessee: $225,442
  2. Wichita, Kansas: $232,057
  3. Greensboro, North Carolina: $232,326
  4. Columbia, South Carolina: $232,541
  5. Knoxville, Tennessee: $232,620
  6. Little Rock, Arkansas: $233,877
  7. Memphis, Tennessee: $234,524
  8. Lexington, Kentucky: $234,945
  9. Orlando, Florida: $236,513
  10. Winston-Salem, North Carolina: $237,983