SBA: Small Businesses Continue To Struggle With Financing

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Welcome to the Self Made. This is a blog focused primarily on the self-employed and micro-business and full of fantastic posts by not only our team of experts but by YOU!  We realize that there are many ways to help the small businesses out there which is why we invite other business minded individuals to post here and help the rest of the community as well.

SBA: Small Businesses Continue To Struggle With Financing

Sep 19, 2011

Posted by Sung Yoo - Small businesses are incredibly bank dependent for their credit needs. After all, they can’t offer any collateral, show a long credit history, nor access commercial paper, bonds, and traded equity in the financial markets. If you’re self-employed, the challenges are greater and choices slimmer.

Unfortunately, with the economic recession in full swing, it’s become even more difficult for small business owners to go and sign papers at the local bank. New regulations have popped up, requiring banks to be more conservative with their lending activities. Small businesses can’t borrow (or choose not to borrow due to uncertainty), so they can’t grow and won’t hire. Since people have no jobs, they won’t spend. And since there’s no demand (due to people and small businesses not spending), there’s no economic growth and the great recession continues on and on…

It’s a vicious cycle. So who is to blame?

Regulators and small banks are pointing fingers at each other, according to Forbes’ Halah Touryalai.

According to Touryalai, small business owners depend on smaller banks and credit unions for their credit needs. Entrepreneurs who typically get rejected from a larger bank will be considered at smaller banks, she says.

Yet ironically, because smaller banks are small businesses themselves, they’re unable to navigate regulations as easily compared to a larger bank.

The Small Business Administration’s (SBA) Office of Advocacy has released two studies that quantify these empirical findings:

  • One found that during the financial crisis, bank holdings of liquid assets became an important factor for bank lending, and that healthier banks shied away from small commercial and industrial and small commercial real estate loans.
  • The second found that even during the financial crisis, credit unions provided some extra business lending in response to reductions in bank business lending. Though these findings have not been consistent over time, credit unions can possibly help small businesses and reduce the cyclicality.

During the conference to unveil these findings, the attendees debated who's to blame and how to move forward but one thing is clear: Small businesses are hurting now. After all, a NASE survey found that 77% of micro-business owners do not believe there are enough funding sources available.

Though the NASE can't replace your local bank, there are a variety of Member benefits you can take advantage of for your funding needs: The Succeed Scholarship™ program for additional education and training, and Growth Grants™ for financing a particular business need. Though the Succeed Scholarship™ application period for 2011 has ended, Growth Grant™ applications are open until Nov. 30th, so don't be late!

Recently, some staff at the NASE visited Pat Bennett in La Mesa, Calif. to award her a $20,000 Growth Grant™ which she will use to introduce her concept to the marketplace. I recently had the chance to see some videos of her being interviewed by NASE staff, and it's clear that with the right vision, market and most importantly, funding, small businesses can succeed even in this tough economic environment. We wish you the best, Pat!

Feel free to comment below, Tweet, or Facebook us about your financing challenges and don't hesitate to contact us at 1-800-649-6273 for more info about our grant applications - we'd be happy to walk you through the process. Take care, and we look forward to hearing from you!

The opinions expressed in our published works are those of the author(s) and do not necessarily reflect the opinions of the National Association for the Self-Employed or its members.

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