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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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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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Small Business Resource Tip: On Deck Express

March 15th, 2012 ::

On Deck Express

Sometimes you need capital for your business at the last moment, when you least expect it. On Deck Express, the new offering from On Deck, is a small business loan platform developed to help Main Street business secure loans. With On Deck Express, small businesses can access loans up to $25,000 in as little as 24 hours. Once business owners set up a profile online, they’ll immediately get insights into their credit profile and cash position. Since the application and approval process is automated, loan options are available quickly. Companies must have been in business for at least one year to use On Deck Express.

 

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Choose the Right Path to Getting a Small Business Loan

March 13th, 2012 ::

By Karen Axelton

Are you seeking a loan for your small business? How can you boost your chances of success? One surprisingly simple way is by choosing the right bank to approach before you ever apply for your loan.

While many entrepreneurs start their search for funding at the bank where they currently bank, the bank across the street from their business or the one that has the biggest name, a new study by MultiFunding suggests that if that bank is a major one, you could be making the wrong choice.

Why? Well, MultiFunding’s research showed that as banks get bigger and more bureaucratic, their small business loan balances decrease.

According to MultiFunding’s data, there are about 93,000 bank branches nationwide. Of these:

  • 51 percent are owned by 62 national banks with branches in six or more states.
  • 14 percent are owned by 437 regional banks with branches in two to five states.
  • 35 percent are owned by 6,280 state banks witih branches in just one state.

Now here are some numbers that might surprise you:

  • The average branch of a large national bank manages $4.6 million in small business loans.
  • The average branch of a regional bank manages $6.8 million in small business loans.
  • The average branch of a state bank manages $9.1 million in small business loans.

In other words, the bigger the bank, the fewer small business loans it is making. Overall, large national banks use 4.41 percent of their domestic deposits to make small business loans.  Regional banks use 10.98 percent, and state banks use 14.46 percent.

Multifunding’s conclusion? “Local, community-oriented banks are best equipped to meet the needs of small business owners.”

Of course, it can make a lot of sense to start your search for financing at the bank where you already have your business accounts. But don’t assume that is your best choice. Investigate all your options, and give local and community banks in your area a fair chance. Talk to other business owners in your community and industry to find out where they are getting their loans and what kind of luck they have had with banks in your area.

By choosing the right bank to approach in the first place, you can save yourself time, headaches and the heartache of having your loan application turned down.

Image by Flickr user shinealight (Creative Commons)

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

Small Business Lending: Finally, a Light at the End of the Tunnel?

February 28th, 2012 ::

By Maria Valdez Haubrich

Small business lending activity seems to finally be looking up.  In January, alternative lenders—such as community banks, credit unions and others–approved more small business loan applications than they had done in any month during 2011, reports American Banker.

Banks with assets under $10 billion approved 47.5 percent of applications for loans between $25,000 and $3 million. That’s an increase from 43.5 percent approval in January 2011. Credit union approvals grew even more: 57.6 percent of those applications were approved, up from 48.9 percent in January 2011. And alternative lenders saw the largest surge of all.  Community development financial institutions, microlenders and accounts-receivable lenders approved 62.4 percent of small business loan applications, an increase from 49.3 percent in January 2011.

While smaller banks and alternative lenders are still the major source of small business financing, large banks are starting to show positive signs as well. American Banker cites statistics from Biz2Credit that show large banks approved more loan applications in January than in any month of 2011. That doesn’t mean big banks are opening the vaults freely: Biz2Credit reports that banks with assets of $10 billion or more approved only 11.7 percent of loan applications. Before the recession hit, large banks’ loan approval levels hovered in the 40 to 44 percent range.

However, the overall good news seems to be inspiring small businesses to apply for loans—something that many had given up on during the recession years. Biz2Credit reports that its loan application volume was up 35 percent in January compared to December 2011. Although loan applications typically increase in January, this is a larger surge than last year’s 21 percent increase.

Biz2Credit also notes that an increase in startups seeking funding may be one reason alternative lenders are showing a surge in loan approvals. Startups traditionally have difficulty getting financing from bigger banks, which prefer to lend to businesses with a track record of success.

In addition, large banks are still cautious due to factors including the European financial crisis and the debt battle in Congress—both issues that have a disproportionate effect on large banks compared to smaller ones. Biz2Credit predicts that, having reduced their outstanding loan portfolios in December to shore up capital, big banks will cautiously start coming back into the fold and lending to small business.

Image by Flickr user Fiona Shields (Creative Commons)

 

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Need Just a Little Business Financing? Here’s Where to Look

February 23rd, 2012 ::

By Maria Valdez Haubrich

It seems like the economy might finally be on a permanent upswing. But even though economic indicators are looking more positive, that doesn’t mean your chances of finding business financing are improving.

Ironically, getting smaller amounts of financing for expansion can be a particular challenge. If you need some quick capital right now, you’re going to have to think creatively about ways to get it. Consider the following ideas.

Credit card financing: While experts used to warn against this method, it’s become more acceptable, simply because fewer financing options exist today. Used wisely, credit cards can be a great cash flow management tool. Just be sure you keep the amounts borrowed manageable so that you can make timely payments.

Home equity: In some regions of the country, falling home values have rendered this financing method nearly obsolete. But if you’re fortunate enough to have equity in your home, tapping it can be an option. Be sure to carefully weigh the risks against the potential benefits and make sure you can pay the money back so your home isn’t in jeopardy.

Retirement plans: Tapping your retirement plan such as a 401(k) is another possibility, but whether this is right for you will depend on how much money is in your plan, your risk tolerance, and how close you are to retirement age. Be sure you understand how (or if) you will be required to pay the money back, as well as any fines or penalties involved.

Factoring: Factoring companies buy your business’s receivables and collect the funds for you, then take a percentage of the amount as payment. You won’t get the full amount of your receivables, but you will get quick access to cash. Make sure this tradeoff is worth it to you. Also be sure you are dealing with a reputable factor and that you understand the interest rates and any fees involved.

Microloans: Community organizations are one source of microloans, which, as the name implies, are for smaller amounts of funding (usually under $50,000). The loans are often aimed at certain entrepreneurial categories. For instance, you might find microloans intended to encourage women business owners, military veterans or people whose companies are located in poor areas. The SBA has a microloan program; your local economic development department can help you explore microloan options in your community.

SBA loans: The Small Business Administration (SBA)’s SBA Advantage program offers a simplified loan application process for 7(a) loans of up to $250,000. Small Loan Advantage loans are made by SBA-guaranteed banks; Community Advantage loans are made by nontraditional financial institutions to help underserved communities.

Image by Flickr user photosteve101 (Creative Commons)

 

 

 

 

 

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Where Are VCs Investing Now?

February 14th, 2012 ::

By Karen Axelton

Facebook’s recent IPO may be getting all the attention, but social media isn’t the only area where investors are putting their money. When it comes to venture capitalists, Information Week reports, VCs’ favorite place to invest in 2011 was the health IT sector. Specifically, medical software and information services attracted $633 million in VC investment in 2011–the most this sector has attracted since 2001, according to data from Dow Jones VentureSource.

DowJones data shows VC investment in health IT rose from $394 million in 2009 to $520 million in 2010. 2011 saw a 22 percent increase in dollars invested, along with a 26 percent increase in the total number of deals–from 68 in 2010 to 86 in 2011.

What’s behind the surge of interest in healthcare IT? The last three years have seen wider adoption of electronic health records, accelerated by President Obama’s federan incentives. And consumers’ and healthcare practitioners’ growing comfort with using the Internet, software and mobile devices to store, access and manage health-related data has attracted VCs’ attention.

And their interest in the health IT sector shows no sign of slowing, according to the most recent Venture View survey by Dow Jones VentureSource and the National Venture Capital Association. The poll of more than 500 venture capitalists in late 2011 found 61 percent predict investment in healthcare IT will rise in 2012.

While health IT is a rising star of healthcare VC investments, biopharmaceuticals was still the healthcare industry that got the most VC investment in 2011, with 302 deals at a total of $3.9 billion. However, compared to 2010, that figure represents a 6 percent decline in deals and flat dollar investment.

Medical devices came in second, with 290 deals in 2011 for a total of $3.3 billion. Although the number of deals declined slightly, investment dollars rose by more than 25 percent.

Where are VCs not investing? Perhaps due to uncertainty as to how healthcare reform will actually shake out, investment in healthcare services plummeted from $1.2 billion in 2010 to $541 million in 2011.

Overall, the Dow Jones VentureSource quarterly survey of VC investments in energy, consumer Web and IT, health, and electronics and computer hardware companies showed that total VC investments slowed in the last quarter of 2011, the year overall saw 3,209 deals for a total of $32.6 billion. That’s a 10 percent increase in capital raised and a 6 percent increase in the number of deals compared to 2010.

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