Outlook Not Improving for Small Businesses

Just when the federal government thought the economy was turning around (of course they are wont to believe things that are not so) comes news on several fronts that small businesses are again - or still - in trouble. Several articles in the Wall Street Journal point out the sad fact that small businesses continue to be assaulted from multiple angles, particularly in the area of credit and financing. What this tells us is that, in spite of Washington’s assertions, the economy is not getting better and overall we are still in trouble.

Small businesses are still unable to access the funding needed to expand operations and hiring

In a June article (“Study: Capital Still Tight for Small Firms”), Angus Loten reported that a Pepperdine University study showed that 54% of businesses surveyed had failed to receive funding in the previous six months. This in spite of the fact that these businesses reported an overall positive outlook during the past year. The study also showed that banks had denied 60% of loan applications since January, and the news was even worse on angel investors and venture capital sources. Associate Professor John Paglia, who led the survey, told Lofton that the study shows small businesses are still unable to access the funding needed to expand operations and hiring, both of which are needed to help the economy out of this lengthy recession.

In another June article (“Smaller Businesses Seeking Loans Still Come Up Empty”), Emily Maltby reported that total outstanding loans to small businesses dropped 8.6% compared to March 2010. For large banks the numbers were even worse - a 14% drop in loans outstanding to small businesses. These are some of the same banks that received large infusions of cash early on in the recession and that promised to improve lending to small businesses. Pulling from the same Pepperdine University study, Maltby reported that only 17% of businesses with less than $5 million in revenue were able to land bank loans in the previous six months. This contrasts sharply with the 37% of larger ($25 million or more in revenue) businesses that received bank loans over the same period. All this after these banks assured us that they were “relaxing standards” for small business loans. Clearly their idea of “relaxing” does not fit what most business owners would have in mind. The large fly in this ointment? Federal regulators who continue to insist that banks hold large amounts of capital in case of loan defaults, leaving them less to work with, as well as additional proof that loans will be repaid.

In his most recent article (“Bankers: Credit Tightens for Small Firms”), Angus Loten reports that bankers now expect the situation to become worse for small businesses seeking funding. According to the article, 60% of risk managers surveyed said they expected to approve the same amount or fewer small business loans in the coming months. This in comparison to expectations (by over 73% of those surveyed) that demand will increase. Clearly we have a severe problem here. No wonder that the NFIB reported another slip in its small-business optimism index, according to a report by Kathleen Madigan (“Small-Business Sentiment Slips Again”). According to the NFIB, the level is “still firmly rooted in recession territory.” Add this to everything else and you can see that our economy continues to be in serious trouble.

In other reading, I have found that small business hiring is negative by about 3-4% in the last reporting period. Over 65% of all small business owners interviewed made it clear that they are not going to hire due to the uncertain nature of the loan environment, taxation policies, future health care costs, the strength or weakness of the consumer and the debt debacle that is occurring in Washington DC. Politics as usual is hurting the job and business picture for the foreseeable future.

If, after all this news, you are still hoping to expand your business, I strongly recommend that you work with an expert in financing and loans. With the right advice you can improve the likelihood of making it past the gauntlet of risk managers and regulators to the final goal of loan approval. Can anyone guarantee success? Not if they are honest. But with over thirty years of experience, I have been able to help many businesses reach that final document signing. Feel free to contact me through the links below, and watch the special video report available.

Craig G. Francis is the owner of Francis Financial and The SBA Loan Store. He has been a top producer of SBA Loans since 1981, and has worked with Dun & Bradstreet and Bank of Commerce. Craig Francis has the expertise to steer clients through the often confusing rules and regulations associated with SBA Loans, having helped over 2,000 businesses acquire over a billion dollars in loans. He can be contacted through CraigGFrancis.com, SBALoanStore.com, on LinkedIn, or at 888-666-9722.