Small Business Lending Still Very Tight Compared With Five Years Ago

Small business owners who have turned their eyes toward expansion in the last few years have likely found that their ability to do so was potentially hampered somewhat by the fact that lending by banks of all sizes to such enterprises has been extremely constricted. That problem persists to this day, and may be a considerable source of frustration to entrepreneurs across the country.

Before the economic downturn started in earnest – symbolized by the collapse of financial giant Lehman Brothers in September 2008 – most small business owners felt it was relatively easy to obtain financing when they wanted or needed it, according to a new survey from Merchant Cash and Capital. At that point, only 6 percent of owners said that they found it very difficult to obtain a small business loan, but from 2008 through the end of last year, about half of respondents said that they felt it was either somewhat or very difficult to do so. And while that has slackened so far in 2013, leading 45 percent to feel the same way today, almost nine out of 10 owners say that they don’t think conditions will get any easier to deal with over the next 12 months.

“Even though the economy is improving and banks claim to be financing more, there really seems to be a disconnect between what lenders are saying and small businesses are feeling,” said Merchant Cash and Capital chief executive officer Stephen Sheinbaum. “Five years after the official start of the financial crisis, many small businesses, especially those with annual revenues under $1 million, continue to struggle to secure approval on the traditional loans they need to run their businesses.”

Further, 69 percent of those polled said that they don’t think traditional small business lending has returned to where it was just before the downturn in 2007, and two out of five say that they have looked into alternative financing options as a consequence, the report said. Of those, some of the options that were at least somewhat popular were also rather risky: 15 percent said that they’ve used credit cards – with their high interest rates – to cover the costs they would have handled with small business financing, and close to one in 10 turned to family or friends for some additional funds.

What further impact could this have?
Of course, a lack of available financing can be detrimental in a number of ways to small businesses, and today, 54 percent of owners say that they have no plans to hire in 2014, the report said. Sheinbaum noted that this could be restrictive for the growth of the entire economy going forward, given how important hiring is to promoting progress in this area. Prior to the economic downturn, close to one-third of owners said they used small business financing to grow their businesses, compared with just 22 percent following the downturn. Instead, 40 percent say that they use those funds to simply keep their companies afloat, compared with slightly more than three in 10 who did the same before the economic collapse.

Independent company owners who are hoping to avoid having costs that are too large to handle without financing may want to look for ways to reduce costs instead, and one way in which they may be able to do so is by looking for more affordable small business insurance. Cutting monthly premiums for liability insurance and other types of coverage may free up money that can then be used to make improvements to companies as they attempt to continue their growth.