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Surveying the Small Business Financing Landscape

Guest post by: Tracy Eden

Article Overview: Over the past month or so, there has been a noticeable shift in the dialog coming out of Washington, D.C. with regard to economic priorities, with a stronger emphasis on job creation. As part of this emphasis, the federal government has proposed and launched several initiatives to help increase access to capital and grow small business financing. But I'm not sure that a lack of access to capital is what’s really holding community banks back from doing more small business financing. Only 11 percent of respondents to a recent survey said they had sought new lines of credit or small business financing over the past year in an effort to help improve their cash flow. Read on for more interesting results from this Forbes Insights-CIT study.

Surveying the Small Business Financing Landscape

Over the past month or so, there has been a noticeable shift in the dialog coming out of Washington, D.C. with regard to economic priorities, with a stronger emphasis on job creation.

As part of this emphasis, the federal government has proposed and launched several initiatives to help increase access to capital and grow small business financing. One of these would transfer $30 billion to a new Small Business Lending Fund that could be accessed by community banks.

But is a lack of access to capital what’s really holding community banks back from doing more small business financing? I don’t think so, and neither does Jim Blasingame, the creator and host of The Small Business Advocate Show, the world’s only weekday small business radio program.

“Washington says that banks aren’t lending money to businesses, and if they’re talking about big banks, they’re right,” Jim said when I appeared on his show recently. “But every community banker I’ve talked to says they’ve got lots of money to lend. Access to capital isn’t the problem—the problem is that small businesses aren’t asking banks for loans.”

A recent survey conducted among business owners and executives by Forbes Insights and CIT bears this out. Only 11 percent of respondents said they had sought new lines of credit or small business financing over the past year in an effort to help improve their cash flow. Also, just 11 percent said that their greatest cash flow challenge in the past year was difficulty in securing small business financing, the second-lowest ranked answer in the survey.

While loans are available to help well-run small businesses finance growth and working capital, there’s no question that they’re harder to obtain than they used to be.

In this environment, owners need to be more agile, flexible and transparent. Meanwhile, lenders have expanded their reporting and recordkeeping requirements, as well as monitoring of financial performance. They’re also examining collateral more closely to try to ensure that borrowers can repay their loans.

What Business Owners Are Thinking

The Forbes Insights-CIT survey revealed some interesting findings with regard to how business owners feel about their companies, the overall U.S. and world economies, and Washington, D.C.’s effort to revive the economy:

• Respondents were mostly optimistic about prospects for their companies this year, thought they were more cautious about the overall economy in general. More than half (61 percent) expect their own company’s revenues to increase this year, primarily because the recession has forced them to work harder and smarter than they ever have before.

• More than three-quarters of respondents (78 percent) believe they will have to learn to adapt and do business in new ways in order to succeed in a more competitive marketplace.

• Very few respondents believe that policies enacted by the federal government are helping the recovery. A full 90 percent said that economic stimuli does not benefit small business. However, most (58 percent) do believe that proposals to raise SBA loan limits will be helpful to small businesses.

• Most encouraging is the belief among owners and executives in the power of small business as the main driver of the U.S economic engine. Eighty-three percent believe that small businesses will play a major role in helping lead the economy back to recovery.

What doesn’t kill you makes you stronger, and this seems to be how business owners feel about their prospects for success this year and beyond. “The survival strategies that companies use during a downturn can often aid them during the resulting upswings and make them more resilient,” the report noted.

“U.S. small businesses are looking ahead to 2010 in anticipation that the ordeal of the 2009 recession may be fading,” it concluded. “Having made it through the economic trauma, business owners are hoping that the hard lessons they’ve had to face will provide them with the discipline and control necessary to help ensure their success.”

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