By Rieva Lesonsky
How is the economy impacting small businesses—in particular, their access to capital? The Small Business Success Study recently released by The Hartford found that some entrepreneurs face greater challenges than others in managing cash flow and getting the capital they need to operate or grow.
When asked “How easy is it for your business to generate positive cash flow in a typical month?” 39 percent of respondents said it was “moderately easy.” Just 19 percent described it as “very” or “extremely” easy. On the other end of the scale, 21 percent said it was “slightly” easy and one in five said it was “not easy at all.”
The study asked business owners whether their overall goal was to grow their business or simply to maintain its current size. Surprisingly, the entrepreneurs who were focused on growth were more likely to have challenges generating positive cash flow. Nearly one-fourth of them (23 percent) said it was not easy to generate positive cash flow, and just 6 percent said it was extremely easy. In comparison, only 16 percent of “maintenance”-oriented entrepreneurs had trouble generating cash flow, and 9 percent said it was extremely easy to do so.
What about getting the capital they need? Again, growth-oriented business owners faced more difficulty. Just 23 percent said it was “not difficult at all” to get a loan or other capital, compared to 41 percent of maintenance-oriented business owners. And nearly half (43 percent) of growth-oriented entrepreneurs said it was “extremely” or “very” difficult to get capital, compared to just 23 percent of maintenance-oriented business owners who said so.
Why the differences? The study didn’t draw conclusions, but perhaps it’s because growth-oriented business owners have higher expectations for cash flow or are more aggressively seeking capital. As such, they may find it harder to generate the larger amounts they need, compared to “maintenance”-oriented entrepreneurs who are satisfied with the status quo.
The Hartford did suggest an overall environment that’s more hospitable to small businesses would be helpful in meeting capital needs. “A more favorable lending environment [would help] small businesses that often rely on personal savings, credit cards and collateral (like their homes) to apply for a loan,” the report’s authors note, adding that “regulatory hurdles and compliance burdens persist for banks that want to make loans to small businesses.”
Image by Flickr user Benjamin Sperandio (Creative Commons)
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Tags: Capital Access, Raising Capital, small business
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