A recent survey of small
business owners commissioned by New York -based Capital Access
Network (CAN), American entrepreneurs are facing a near crisis when
it comes to obtaining financing needed to maintain and/or expand
their businesses. In recent years, American small businesses have
been credited with jumpstarting the economic recovery, moving many
unemployed workers into entrepreneurial endeavors. Today’s survey
data shows 79 percent of small businesses are undercapitalized and as
many as 90 percent run the risk of filing bankruptcy or shutting down
in the first five years. Those same small businesses that once drove
economic growth are having little success in finding accessible
working capital to stay competitive and grow.
Approaching and securing traditional funding sources like banks or
the Small Business Administration (SBA) have been complicated by the
flood of hurricane-related disasters and rising interest rates.
Respondents cited a variety of reasons for why it was difficult to
obtain small business funding including rising interest rates,
difficulties with excessive documentation, cumbersome applications
and required collateral.
The research, highlighted in the first edition of a quarterly series
titled "Capital Access Network Small Business Barometer" indicated
that these businesses have a low awareness of newer funding options
and might benefit from alternative funding options.
The survey was conducted nationally among small business operators
who accept credit cards as a form of payment. It revealed compelling
data about the state of small business finances:
• 80 percent of small businesses have a greater need for funding
today than they did one year ago.
• 82 percent of small businesses believe it is more difficult to get
financing today than one year ago.
• The majority of respondents (56 percent) also indicated that they
would consider starting a business in a new industry if they had
access to more funding options, helping fuel the American economy.
Nearly all extensions of capital to small businesses, whether in the
form of credit cards or commercial loans, are tied to the prime rate.
For business owners, the impact of these rising rates can be severe,
leading to unforeseen and unexpected costs.
The survey asked small business owners to identify the funding
methods that they find appealing, and inquired about the sources of
working capital they have applied to in the past. The survey results
reinforced that while some forms of funding may be appealing on the
surface, many are not always feasible based on the business’ current
situation. 90 percent of respondents found traditional bank loans to
be appealing, yet only one in four actually sought a bank loan
despite needing money. Similar results were found with SBA loans
which initially appear very appealing to small businesses, yet only
one in seven businesses actually sought an SBA loan.
When asked about other considerations, small business owners were mixed.
• More than 55 percent of small business owners do not believe loans
from friends or family are appealing.
• More than 45 percent of small business owners do not believe home
equity lines or second mortgages are appealing.
The data found by the survey is consistent with findings released
recently by the Federal Reserve which said that changes in
regulations and a sluggish economy had prompted small businesses to
turn increasingly to non-banking financiers such as finance and
leasing companies, brokerages, credit- and debit-card processors,
venture capitalists, family, and individuals. The Federal Reserve
said that from 1998 through 2006, small firms’ use of non-bank
financial companies for funding increased from 40 percent to 54
percent. This movement to non-traditional financial sources is the
continuation of a 20-year trend. In 1987 only 25 percent of small
firms used financing that was not provided by banks, thrifts, or
other depository institutions.
The survey found a strong disconnect between how businesses have
previously considered seeking funding and their actual behavior. The
survey also pinpointed a lack of awareness of Merchant Cash Advances,
a funding method that has garnered some recent attention, as
referenced in a May 8, 2006 Wall Street Journal article entitled
“Capital Ideas.” Merchant Cash Advances enable a merchant to employ
their future credit card sales, an asset traditionally unrecognized
by financial institutions, to raise working capital. The survey
responses indicated a low market awareness level for Merchant Cash
Advances.
• At least 73 percent of respondents were unaware that they can sell
their future credit card sales in exchange for working capital.
• Only 6 percent had ever sold future credit card sales in order to
get working capital.
• An overwhelming percentage, 92 percent, responded that they would
find it appealing to have access to a financial product that could
provide as much as $150K - $250K in working capital per
revenue-generating location within 10-14 days.
Generally, Merchant Cash Advance providers purchase fixed amounts of
future credit card sales at a discount. Collection of the purchased
credit card sales occurs automatically through the merchant’s credit
card processor. The Merchant Cash Advance provider receives a fixed,
predetermined percentage from each credit card sale. Since it is
sent a set percentage and not a fixed amount, the provider only gets
paid when the business does, helping manage cash flow throughout the
year. No fixed payment schedule or application fees apply.
For more information on business cash advance requirements and
applications, merchants may log onto http://www.RapidCapital.biz
RapidCapital.biz is a leader in helping small to large size
businesses obtain working capital through a business cash advance.
They do not impose application fees, closing fees or fixed monthly
payments. The program uses a financial process known as accounts
receivable financing in which they only deduct a small percentage of
a business' monthly credit card receivables as payment. And this is
done automatically, so there are never any bills or late fees to
worry about.
