Show me the money. That is what optimistic entrepreneurs are saying to lenders these days. Levels of lending to small businesses are back to the pre-recession levels of 2008. With that said, many small businesses are not going to the credit markets for a variety of reasons. A Federal Reserve regional bank survey showed, among other things, that many companies are currently adequately funded, while 27 percent didn’t want to take on any additional debt, still feeling the effects of the 2008 economic downturn. Slightly rising interest is also keeping borrowers on the sidelines. Instead of borrowing before or as interest rates rise, they are not borrowing at all. Some 17 percent say that they aren’t going to banks for funding because they believe they will be turned down.
It is mostly about the money. While helping someone draw a pie chart, or give marketing advice can be useful, it still comes down to access to capital. Listen to Gregg Ward, who owns a San Diego-based executive coaching and consulting firm, “They’re not easing up (banks). It makes it less likely I’m going to expand my business.” That is a huge statement, since 2 out of 3 new jobs come from small businesses. The SBA needs to focus on two things. One, sit down with a business that needs capital, albeit a start-up or expansion funding, and create a business plan/loan application that will get them money. This should be done prior to the SBA’s Lender Match program. As you would with a car or house, a small business should be able to walk into the matched lender with a certificate of guarantee, or pre-approval letter, from the SBA. Don’t make these people jump through so many hoops. If the SBA doesn’t have the manpower or ability, sub-contract this to the private sector, to expedite the loan process.
Surveys by Bank of America and Wells Fargo also suggest that lending is and will be down for loans under $1 million. In the BOA survey, only 9 in 1,000 small businesses planned to access the credit markets this year, while Wells Fargo found that demand for credit was little changed from the previous year. Here we are again forcing entrepreneurs into a capital corner by making their first choice of loans either by credit card, personal unsecured loans, or friends and family, according to Pepperdine University’s Graziadio School of Business and Management and Dun & Bradstreet. Here is a wonderful example of drop in the bucket funding. This was an advertisement on a google search while researching this article.
That $25K is a nice gesture, but I imagine it is doing more for the business of Inc. Magazine and the UPS Store. Pretty pathetic. The Fed has raised rates twice, and may do it two more times before the end of the year. Challenge Coins 4 U, founded by Sam Carter, produces custom-made medallions and lapel pins. Carter used his own funds to start the Cheyenne, Wyoming-based company six years ago and reinvested profits as it grew. When he wanted a loan to help the company grow faster, he found banks willing to lend to him — at annual rates of 20 percent or more! I wonder why you don’t see 20 percent coupon rates on corporate bonds. I can only think of Venezuela, with bonds yielding 40 percent, as relative to what Carter is facing. Sure, a high percentage of new businesses fail. However, it would take an astronomical number of them to cost taxpayers as much as just one industry, solar, did to America. Just one example is Solyndra, the Silicon Valley startup that collapsed, leaving taxpayers liable for $535 million in federal guarantees. That’s a lot of $25,000 loans. 21,400 to be exact. I’m also guessing it didn’t cost Solyndra 20 percent!