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Bills Would Make It Easier for Credit Unions to Lend to Small Businesses

July 17th, 2012 ::

By Karen Axelton

Small business financing could get easier to find if two pieces of pending legislation pass. Recently introduced by Kurt Schrader (D-Ore.) and Steve Chabot (R-Ohio), the Credit Union Small Business Lending Act (H.R. 4191) would make it easier for credit unions to participate in Small Business Administration (SBA) loan programs.

Another pending bill, H.R. 1418, would raise the cap on how much credit unions can lend to businesses. Currently, credit unions can lend a maximum of 12.5 percent of their assets to member businesses. The bill would raise that percentage to 27.5 percent, significantly expanding credit unions’ ability to make small business loans.

More and more small businesses have been turning to credit unions in the aftermath of the recession, Small Business Trends reports. It’s easy to see why: Over the past year, credit unions have steadily increased the percentage of small business loans they approve, from 51.2 percent in May 2011 to 57.6 percent in May 2012, according to the Biz2Credit Small Business Lending Index. In contrast, the majority of small business loan applications to banks are rejected.

“Allowing credit unions to do more to help small businesses is an important step toward helping our nation recover from the current economic downturn,” says Robert Marquette, at-large director for the National Association of Federal Credit Unions (NAFCU), a national organization that focuses on federal issues affecting credit unions.

The average credit union small business loan is for $185,000—a small enough amount that loans of this size are often difficult to obtain from banks. Testifying before Congress about the need to pass both bills, Marquette told legislators that since the end of 2007, applications to credit unions for small business loans have grown from $87 million to $259 million in 2011.

According to Rohit Arora, CEO of Biz2Credit, there are several key reasons credit unions are increasingly becoming a funding source for entrepreneurs. Credit unions are typically more involved in the local business community than bigger banks, generally have more flexible lending requirements, can make lending decisions more quickly and are less reliant on automated scoring. What’s more, many credit unions even offer better financing rates than bigger banks.

Have you used credit unions to finance your small business?

Image by Flickr user cometstarmoon (Creative Commons)

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Posted in Capital Access, Raising Capital, Small Business, small business, Uncategorized | 3 Comments »

More Small Business Owners Plan to Seek Bank Loans

July 10th, 2012 ::

By Karen Axelton

Where are small business owners turning for financing these days? If you think entrepreneurs have given up on obtaining bank loans, think again. More than two-thirds (68 percent) of entrepreneurs seeking capital for their businesses in the next six months say they will pursue bank loans, according to a survey from Pepperdine University’s Graziadio School of Business and Management, conducted in partnership with Dun & Bradstreet Credibility Corp.

The next most popular source of financing was a business credit card, cited by 40 percent; followed by credit unions or Community Development Financial Institutions Funds (CDFIs), cited by 36 percent.

The First Quarter 2012 Private Capital Access Index study found that business owners with revenue of over $5 million were more optimistic about successfully raising financing from banks than were smaller businesses. Ranked on a scale from 0-4, larger businesses’ confidence in their ability to get a bank loan averaged 2.3, while businesses with sales under $5 million ranked their confidence level at 1.4.

The numbers show significantly higher interest in bank loans compared to the prior survey findings released in December 2011. At that time, just 37 percent of respondents had actually tried to get bank loans in the past 12 months. In contrast, nearly half of respondents (49 percent) had used credit cards. Of course, it remains to be seen if the 67 percent of entrepreneurs planning to apply for bank loans actually follow through. However, the growth in intention alone is a positive indicator.

“As business owners secure more traditional sources of financing and rely less on their own personal resources,“ said Dr. John Paglia, director of the Pepperdine Private Capital Markets Project and associate professor of finance at Pepperdine University’s Graziadio School of Business and Management, “they will have more discretionary money to spend thereby stimulating our economy.”

Image by Flickr user Philip Taylor PT (Creative Commons)

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Posted in Capital Access, Small Business, small business | 3 Comments »

What the JOBS Act’s Crowdfunding Provision Means for Your Small Business

July 5th, 2012 ::

By Karen Axelton

Have you used crowdfunding to raise capital for your business, or have you considered it? The JOBS Act signed into law by President Obama on April 5 creates new potential for entrepreneurs to raise money via crowdfunding—but also adds new levels of complexity.

According to crowdsourcing.org, global crowdfunding raised some $1.5 billion in 2011.  Prior to the JOBS Act, crowdfunding sites were only able to solicit donations from contributors—not investments. Because these were donations, they were typically small amounts. A crowdfunding provision of the JOBS Act changes that, allowing small business owners to raise investments (up to $1 million per investor) via crowdfunding websites.

As of July 4, you will be able to crowdfund from “accredited investors” (whose net worth, excluding the value of their primary residence, is more than $1 million). But the SEC still has to put final regulations in place as to how entrepreneurs will be allowed to solicit crowdfunding from nonaccredited investors.

The SEC is expected to release these regulations in January 2013. What can you do in the meantime? Use the intervening months to educate yourself about crowdfunding and the various platforms for doing so. One estimate puts the number of active crowdfunding sites at more than 450, and that number is projected to increase by as much as 25 percent by the end of the year.

Some of the benefits of crowdfunding as opposed to seeking financing from angel investors or venture capitalists:

  • It allows you to tap into a market of interested, non-professional investors who are also likely to be customers of your product.
  • You will be able to raise money from people you know even if they aren’t accredited investors.
  • You can raise capital for creating a prototype or market-testing your product before launching it.
  • Unlike traditional capital-raising, crowdfunding also creates public awareness of your business, serving as a marketing tool.

Of course, crowdfunding investments is not a simple process, and you will need to enlist legal and accounting help from someone familiar with the process. In the meantime, some existing crowdfunding platforms to check out include SomoLend, Indiegogo, Kickstarter and Peerbacker. You can learn more about crowdsourcing in general at www.crowdsourcing.org.

Image by Flickr user Karen O’D (Creative Commons)

 

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Posted in Accounting and Taxes, Business Law, Capital Access, Compliance, Raising Capital, Small Business, small business | 1 Comment »

Small Business Owners Feel Confident About Their Businesses and Their Finances

June 19th, 2012 ::

By Karen Axelton

Despite economic ups and downs, overall the nation’s small business owners are feeling very confident about the economy in general, the outlook for their businesses in particular, and their ability to get the capital they need to operate and grow, according to Bank of America’s first Small Business Owner Report.

Small business owners believe the local economy matters more to their businesses’ success than does the national economy. Some 69 percent say the local economy is “very important” to their businesses, which may be why they’re feeling good about their prospects for the next 12 months. Though only 35 percent think the national economy will improve in that time period, 42 percent say their local economy will get better.

In keeping with their self-directed attitude, the majority of small business owners (53 percent) believe their decisions matter more to their businesses’ success than does the overall economy. Younger entrepreneurs (aged 18 to 34) were even more likely to feel this way (66 percent).

Some 31 percent of small business owners plan to add staff in the next 12 months, with the number of employees expected to grow by an average of 25 percent. More than half (56 percent) say their staffing levels will stay the same, which is encouraging in itself after years when many layoffs have occurred.

But staff isn’t the only thing that’s growing for the nation’s small businesses. Nearly two-thirds (61 percent) project their sales will increase in 2012, with 32 percent expecting their revenues to stay about the same.

What challenges are small business owners facing? Not surprising in an election year, 75 percent cited the effectiveness of U.S. government leaders as their top concern. Other worries included oil and gas prices (73 percent), consumer spending (71 percent) and the cost of health care (70 percent).

Overall, small business owners don’t express much worry about the availability of credit, which ranked as one of the bottom three concerns among respondents. More than three-fourths (78 percent) of applicants who applied for a loan within the past two years were approved, and 71 percent of respondents say they currently have enough capital to run their businesses effectively.

Far from thinking it’s too difficult to get business loans, one-fourth of respondents believe today’s lending requirements are appropriate and shouldn’t change. In fact, 20 percent say requirements to get business loans should be even more stringent so that small business owners would be less likely to default.

Image by Flickr user apdk (Creative Commons)

 

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Posted in Capital Access, Raising Capital, Small Business, small business, Uncategorized, Workforce | 1 Comment »

How to Find a Small Business Friendly Bank—and Get a Small Business Loan

June 12th, 2012 ::

By Maria Valdez Haubrich

Small business owners need financing to expand and grow their businesses, but small business loans have never been easy to get—and since the Great Recession struck, funds have gotten even more elusive. The average bank uses just 7.65 percent of its deposits to make small business loans, according to small-business-loan broker MultiFunding.com. That’s why MultiFunding decided to create a new tool that helps small businesses find small-business-friendly banks near them.

The new tool, Banking Grades, allows business owners to search for small business friendly banks by name, address or location. Users can also view a list of the 2,500 or so banks that received an “A” grade.

MultiFunding CEO Ami Kassar explains that the ranking was created by taking all FDIC regulated banks nationwide and using FDIC data to rate the banks based on the ratio of business loans of $1 million or less to total domestic deposits. Here’s what the rankings mean:

A (Excellent): Uses at least 25 percent of its deposits to make small-business loans

B (Good): Uses 10-25 percent of its deposits to make small-business loans

C (Average): Uses 6-10 percent of its deposits to make small-business loans

D (Poor): Uses 3-6 percent of its deposits to make small-business loans

F (Failing): Uses less than 3 percent of its deposits to make small-business loans

Kassar says the banks with the highest grades tend to be smaller, community banks that are focused on helping small businesses. That doesn’t mean these banks are a slam-dunk, however. Kassar says access to credit is loosening up, but only very slightly.

How can you improve your chances of getting a loan? Kassar’s advice includes:

  • Be well-organized. Have all your ducks in a row such as financial reports and statements.
  • Have collateral to pledge against the loan. Unsecured loans are more difficult to obtain.
  • Have good cash flow. The bank wants to feel confident the loan will be repaid.
  • Find the right bank. “Find a bank or lender where the loan officer and the credit officer collaborate and work together to find a way to make it happen [for you],” he says.

While Kassar feels credit unions are also a good source for small business loans, he notes that they file different reports than banks do; as a result, including them in Banking Grades would have been an unfair comparison.

Image by Flickr user _fidelio_ (Creative Commons)

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Posted in Capital Access, Raising Capital, Small Business, small business | 2 Comments »

Small Business Owners Wary of Crowdfunding, Study Shows

June 5th, 2012 ::

By Karen Axelton

Small businesses are still struggling to obtain the financing they need, and the challenges of finding capital are restricting their opportunities to grow and to hire new employees, reports a study by Pepperdine University’s Graziadio School of Business and Management together with Dun & Bradstreet Credibility Corp.

Given the challenges of obtaining traditional small business financing, you might expect small business owners would be eager to take advantage of the recently passed JOBS Act’s easing of restrictions on crowdfunding. But only 3 percent of small business owners surveyed thought the JOBS Act would increase the likelihood of companies raising money through crowdfunding. Fifty-three percent don’t think the JOBS act will make it more likely that business owners will raise money through crowdfunding, and 45 percent said they weren’t sure what effect it would have.

In the survey of nearly 6,000 business owners, 64 percent of those with revenues under $5 million said difficulty securing financing is limiting their growth potential; 55 percent said it is hindering their plans to expand their workforce. The states with the highest percentage of business owners saying the financing environment is restricting their growth are:

  1. Nevada (75 percent)
  2. New Mexico (72.6 percent)
  3. Maryland (70.5 percent)
  4. Florida (70.2 percent)
  5. Virginia (68.8 percent)
  6. Delaware (68.2 percent)
  7. North Carolina (67.7 percent)
  8. California (67.4 percent)
  9. Georgia (66.9 percent)
  10. South Carolina (66.1 percent)

While small businesses and entrepreneurs have long raised donations from individuals via crowdfunding sites such as Kickstarter and IndieGoGo, the JOBS Act eases restrictions so that companies can raise investments, rather than just donations. The goal is to  make it easier for small businesses to raise capital without the lengthy process of registering documents with the Securities and Exchange Commission.

However, the SEC still has to finalize regulations to govern crowdfunding, which will not take place until the end of 2012 or later. The uncertainty in the Pepperdine/D&B Credibility survey might reflect the fact that the details of crowdfunding are still up in the air.

In the meantime, in the six months that ended March 31, small business owners used more traditional methods to obtain capital. Seventy-one percent got financing from friends and family; 62 percent used personal credit cards; 59 percent used business credit cards and 45 percent got bank loans. Nearly half (46 percent) of business owners with revenues under $5 million say they have transferred personal assets, such as money from savings accounts or investments, to their business in the past six months.

Image by Flickr user Kevin Briody (Creative Commons)

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Posted in Capital Access, Raising Capital, Small Business, small business, Uncategorized | No Comments »

Small Business Owners Hopeful About Access to Credit

May 22nd, 2012 ::

By Karen Axelton

Small business owners are becoming more optimistic about the availability of credit, a new survey by Gallup shows. The Wells Fargo/Gallup Small Business Index poll conducted last month shows that small business owners’ perception of the ease of obtaining credit is the most positive it has been in three years.

The poll found a net difference of -7 percentage points between the 2 percent of small-business owners who say credit will be easy to get in the next 12 months and the 32 percent who say it will be difficult. Of course, that’s nowhere near the +45 of June 2007, before the recession began. The measure hasn’t been positive since a +14 reading in September 2008.

The poll also reflects a continuing trend, as the 32 percent who expect credit to be somewhat or very difficult to get in the next 12 months is down from 38 percent in January and 43 percent in November 2011.

That’s perception, but what about reality? Asked to look back over the past 12 months, 30 percent of small-business owners said that credit was somewhat or very difficult for their companies to get; 22 percent said it was somewhat or very easy to get. Thirty-four percent were either extremely or very confident they could get credit if needed; 39 percent were “somewhat” confident about this.

Small business owners are no strangers to borrowing: Three in four have previously borrowed money or used credit for their businesses. About half (47 percent) use just a little of the credit available to them, while 20 percent use most or all of it.

What does credit enable small business owners to do?

  • 76 percent of owners say it has made it easier for them to run their businesses on a daily basis;
  • 63 percent say it has helped them keep their businesses open;
  • 50 percent say it has helped them expand their products and services, take more risks, and be more profitable;
  • 33 percent say it helped their businesses with payroll; and
  • 20 percent say it allowed them to hire.

Image by Flickr user Robert Scoble (Creative Commons)

 

 

 

 

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Posted in Capital Access, Raising Capital, Small Business, small business | No Comments »

There’s Good News and Bad News About the Small Business Economy

May 15th, 2012 ::

By Karen Axelton

Are small businesses taking a cue from the nation’s consumers—in other words, borrowing less and paying down debts? That seems to be the case based on two separate reports out from PayNet.

The latest Thomson Reuters/PayNet Small Business Lending Index declined in March, which could indicate slowing in the nation’s economic growth. The Index tracks the overall volume of lending to small businesses nationwide. In March, it declined to 98.5, down from 101.8 in February. Although small business borrowing did increase 10 percent compared to the same time last year, that is the smallest 12-month growth rate since January 2011.

On the plus side, a separate indicator from PayNet, its most recent 30+/90+ Day Delinquency report, found that small businesses are having no trouble paying off their debts. The report, which uses real-time datat to measure the percentage of loans to small and medium-sized businesses that are past due by 30 or more days and 90 or more days, found that accounts in moderate delinquency (late 30 days or more) dropped to 1.39 percent in March, down from 1.47 percent in February. At their height in May 2009 these accounts hit 4.42 percent.

Accounts in severe delinquency (late 90 days or more) hit a record low of 0.34 percent in March. That’s down from 0.36 percent in February. And accounts in default (late 180 days or more) dropped to 0.48 percent in March, down from 0.50 percent in February.

There’s good news and bad news in these two reports. Clearly, the fact that business delinquency is down is a positive sign for the health of the nation’s small businesses. At the same time, the lack of interest in borrowing could indicate small businesses are either feeling uncertain about the nation’s economy, have given up on getting the financing they need, or are feeling too cautious to expand their companies.

What financial steps are you taking in your business these days? Are you focused on debt repayment, or on expansion financing?

Image by Flickr user Vectorportal (Creative Commons)

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Posted in Accounting and Taxes, Capital Access, Compliance, Raising Capital, Small Business, small business, Uncategorized | No Comments »

Small Businesses Seeking Fast Cash Turn Away From Traditional Lending

May 8th, 2012 ::

By Karen Axelton

Small business owners in a hurry for funding are increasingly reluctant to apply to banks for financing for their small businesses, the Merchant Cash and Capital Small Business Finance Survey found. According to the study, many small businesses are not bothering to apply for financing from traditional lenders because they didn’t think they’d be able to qualify. Others were reluctant to apply again after having been turned down for financing in the past.

The study polled entrepreneurs who had applied for a merchant cash advance from Merchant Cash and Capital, a merchant cash advance provider, and found that 42 percent of respondents who had applied for their first merchant cash advance did so because they didn’t think they could qualify for a traditional bank loan.

More than half (57 percent) of those surveyed said they had applied for a small business loan in the past. However, a whopping 76 percent described the process of getting a small business loan from a traditional lender as either “difficult” or “extremely difficult.” And of the 57 percent who had previously applied for a small business loan, 80 percent said they were either declined or had withdrawn their application.

Merchant cash advance companies such as Merchant Cash and Capital provide unsecured financing for businesses including restaurants, retail, service, legal, medical, franchises or ecommerce businesses. The money can be used to cover needs such as inventory, cash flow, expansion, overdue payments and more.

The survey found that small business owners typically use merchant cash advances for short-term needs, including purchasing inventory, payroll, paying taxes or bills, and marketing. Financing expansion was another popular use for the funds.

Clearly, when small business owners are seeking sources of capital quickly, they aren’t looking to traditional lenders as often as they used to. “It’s no surprise that small businesses are suffering from an extreme lack of available financing from traditional lenders and their tight qualifications,” said MCC President and CEO Stephen Sheinbaum in announcing the survey results, “but the depth to which the problem has gone should be of great concern.”

Image by Flickr user myphotosshare blogspot (Creative Commons)

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Posted in Capital Access, Raising Capital, Small Business, small business, Uncategorized | 4 Comments »

Angel Investments Are On the Rise

April 26th, 2012 ::

By Karen Axelton

It’s not surprising that the size and number of angel investments shrunk considerably in 2008 and 2009 after the economy crashed. But in 2010, and upward trend began, and in 2011, the growth continued, according to the Center for Venture Research at the University of New Hampshire.

The CVR’s just-released Full Year 2011 Analysis of Angel Market Trends has encouraging news: Angels are more optimistic, have significantly increased their dollar amounts and have also increased their number of investments—all encouraging signs for entrepreneurs.

The report found that total angel investments in 2011 were $22.5 billion, an increase of 12.1 percent over 2010. A total of 66,230 entrepreneurial companies received angel funding in 2011, an increase of 7.3 percent compared to 2010 investments. The number of active investors also grew by 20 percent in 2011, reaching 318,480 individuals. The significant increase in total dollars invested along with the increasing number of investments meant the average deal size increased by 4.7 percent compared to 2011.

Where are angels investing? For 2011, software was the top sector, with 23 percent of total angel investments, followed by healthcare services/medical devices and equipment (19 percent), industrial/energy (13 percent), biotech (13 percent), it services (7 percent) and media (5 percent).

What about women and minority entrepreneurs? In 2011 women-owned businesses accounted for 12 percent of the entrepreneurs seeking angel capital; 20.5 percent of these women entrepreneurs received angel investment. So even though fewer women seek angel money, the percentage that succeeds at getting it is similar to the overall success rate. What’s more, the yield for investors is actually higher than average for women-owned businesses, by 2 percent.

Minority-owned firms were less well represented, accounting for just 7 percent of the entrepreneurs seeking financing from angels. The report states that the small percentage of minorities seeking angel investment is “of concern.” However, when minority entrepreneurs do get funding from angels, their firms’ yield for investors is in line with the average.

If you’re considering approaching angels, it sounds like 2012 could be the year to make your move.

Image by Flickr user Randy Robertson (Creative Commons)

 

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Posted in Capital Access, Raising Capital, Small Business, small business, Uncategorized | No Comments »

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