Lack of Access to Capital can be a Death Sentence for Small Business, Don’t Let it Happen to You! Be Prepared by Learning How to Increase Your Chances of Obtaining Working Capital.
If you’re a small business owner in need of capital, chances are you know how difficult it can be to find capital sources. You may also be aware of how much of a struggle it is to survive without adequate small business financing in place. The fact of the matter is you are not alone. According to “Small Business Access to Capital Survey”, conducted by the National Small Business Association (NSBA) in May of2012, in the last four years small businesses have had difficulty finding reasonable, affordable capital. Based on data compiled by the NSBA between 1993 and 2012, there is a definite connection between a small business owner’s ability to hire new employees and their ability to obtain adequate financing.
This is a crucial point to understand because the growth of our economy depends largely on small businesses ability to create new jobs. The NSBA also discovered that although there have been reports of an increase in small business lending, it is still difficult for small business owners to obtain traditional bank loans because they often lack the required assets to obtain the financing making them a huge risk for most large banks (i.e. Bank of America, JP Morgan Chase, etc.). In addition, based on responses compiled from the Small Business Access to Capital Survey:
– 43% of small business owners said they had difficulty acquiring capital including loans, credit cards, or funding from investors.
– 32% of small business owners had to reduce their employees because due to lack of operating capital.
– 20% of small business owners had to reduce their employee benefits.
– 17% were unable to meet existing demand.
If you’ve experienced any of the above or foresee it happening in the near future, you may want to do something about it before it affects you over the long term. Try using the following five tips to increase your chances of obtaining capital for your small business:
1. Build and preserve your personal credit – a good way to build and preserve your personal credit is to start out with a small credit card or cards that you can use to pay for some of your general monthly expenses (e.g. gas and groceries). I suggest using the credit cards for things that you know you will have the cash to pay back. Furthermore, always make timely payments and never carry a credit card balance that is greater than 30% of your credit limit. Over time, (sometimes withing 6-12 months but typically in 1-3 years), you will be able to increase your credit card limit and you will see your credit score continuously increase. This will help you significantly when you are ready to apply for small business loans. Lenders will see that you have an established credit history and you pay on time, while keeping your credit card balances low.
2. Build and monitor your business credit– a good way to build business credit is by starting out with small vendor trade lines. Vendor trade lines are often offered by suppliers where you can buy the products or services needed to operate your business. Examples of suppliers include Office Depot, Staples, Dell, Home Depot, etc. These companies offer vendor trade lines that can often be obtained without you providing a personal guarantee (i.e. using your personal credit history and score to get approved). I suggest that you borrow only what you can afford to pay back and make timely payments. This will help you build your business credit history and score so that you may be able to continuously qualify for small business financing solely using your business credit profile in the future.
3. Separate your personal credit from your business credit – a good way to do this is by focusing on building your business credit and using your business credit profile to obtain financing (where possible). If you have to use your personal credit profile to obtain financing be sure that it will not report to your personal credit (as long as you make timely payments).
4. Build a relationship with small community banks and local credit unions according to the Small Business Access to Capital Survey conducted by the NSBA, 73% of respondents said they got the most satisfaction out of working with small community banks and 60% got the most satisfaction from working with local credit unions. Building a relationship with a small community bank or local credit union in your area may make the process of obtaining capital simpler for you. You may experience a better outcome by applying for small business loans with them.
5. Seek expert help – it may be in your best interest to seek the help of an expert who is familiar with small business lending. Often times, former small business bankers go on to start consulting and advisory companies that assist small business owners with acquiring capital. These companies often have “insider knowledge” on the simplest ways to get funding for a small business.
Brittni Abiolu is the Owner & Publisher of www.CapitaLinker.com. Through her website, she serves to educate entrepreneurs and small business owners on how to increase their chances of obtaining capital in the simplest way possible and how to find and connect with the most appropriate funding sources. You can connect with Brittni on Linkedin, Google+, Twitter, Facebook, and Pintrest.
Source: National Small Business Association, Small Business Access to Capital Survey, May 2012, By Chris Holman (NS BA Chair, Michigan Business Network), and Todd McCracken (NSBA President and CEO), http://www.nsba.biz/wp-content/uploads/20 I 2107IAccess-to-Capital-Survey. pdf