Show Me the Money, or at Least Where I Can Get Some

Remember the film Jerry McGuire? In the film, Cuba Gooding who plays the star football player and only client of sports agent Jerry McGuire, played by Tom Cruise. As he is negotiating for his client, they start trading the mantra “show me the money” and increase in volume until it is a cry for getting the most for what you do.

For the past two years, small businesses have been challenged about getting banks to “show them the money “and get loans or other sources of capital to run their business. Over the last year the Network Solutions and the Center for Excellence in Service at the University of Maryland’s Robert H. Smith School of Business has released the findings of their Small Business Success Index survey. The index is designed to track the competitive health of the small business sector over time, and the results are always interesting.  Scores in 6 categories are graded; on February 16, the third edition came out and capital access got even lower marks this quarter with a D+. We are going to dive in and see what the challenges are facing small businesses with getting access to capital.

Everyone Talks About a Tough Economy. Are We at the Bottom?

If you listen to some news reports, the economy is a major factor holding back the success of small businesses. The economic outlook deteriorated in the first half of the year, and has not improved between June and December.

From the SBSI report, “Has the economy hit bottom? Half of small businesses – 50 percent – have been highly impacted by the downturn in the last 12 months, compared to only 36 percent a year ago. In the past six months, the recession has touched more small businesses. In June, one out of four small businesses (25 percent) had been minimally impacted by the recession, but by December, less than a fifth (19 percent) had been minimally impacted”.

Getting Creative to Get Capital to Make It Through

The sources of funding relied on by small businesses has changed markedly in the past 6 months as cash reserves and traditional funding sources have disappeared. The following are steps taken in the past two years and how this has changed since the last survey wave in June:

• Almost half of small businesses (46 percent) have met their capital needs by cutting their own pay; just six months ago, only a third (33 percent) had resorted to this step
• 42 percent have had to take a loan from owner savings, compared with only 32 percent six months ago.
• 39 percent have relied on credit cards (compared to 33 percent in June)
• 33 percent used a business line of credit (compared to 31 percent in June)
• 21 percent used a bank loan (20 percent in June)
• 14 percent took out a home equity loan (10 percent in June)

The SBSI survey found that few have relied on outside investors (5 percent) or SBA loans (4 percent), and only a fifth report having relied on no special funding sources in the past two years. Bank loans have become increasingly scarce. A fifth (18 percent) of all businesses indicate the source has gotten scarcer in the past year, compared with just 13 percent noting this in June; among those who took out bank loans, 43 percent believe the source is getting scarcer.

There is a light at the end of the tunnel. And it is not a freight train.

Despite all these challenging issues, companies are learning to be lean and do without making their balance sheets primed and ready as the economy improves. Granted, we do need lines of credit and other sources of capital to fill in gaps when customers don’t pay exactly on time but small businesses must meet payroll and keep the lights on. The economy is improving although not as fast as we would like it to, still there is a light at the end of the tunnel and it is not a freight train. It is a sunnier day and a positive P&L report.

Download the SBSI Report Right Now

If you are reading this on the web site, GrowSmartBusiness.com, you should see a link to the report or if you don’t or a looking at this in a feed reader, you can get the report at http://growsmartbusiness.com/wp-content/files/SBSI_February_2010.pdf

This entry was posted on Friday, March 12th, 2010 at 11:00 am and is filed under Capital Access, Raising Capital, small business, Small Business Success Index. You can follow any responses to this entry through the RSS 2.0 feed.


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