The Small Business Cry
Funds, Where Are You? Capital, Where Can I Find You?
By Eddy Sumar – Feb 1, 2011
Since the collapse of the housing market and the demise of Wall Street in 2008, the world has witnessed a roller coaster of emotions as well as a deep plunge in small business financing. According to a CNN report, “Lending to small businesses all but stopped….Few investors wanted to buy up small business loans on the secondary market, so few banks wanted to make the loans.” In recent weeks we have been hearing reports from Washington underscoring what President Obama articulated concerning small business. The administration has expressed that it is setting aside $30 billion to encourage lending to small businesses to aid the economic recovery. However, the financial world is yet to open its fists and grant the requests of the small business community. So, where can the small business find the needed funds to start up or grow the business?
There are several sources of capital that a small business can pursue.
· One’s own resources: The source is one’s savings, personal property, and possessions. This source could be immediate and requires less effort and no formal application for credit approval. However this source is limited and depends upon the individual’s wealth, possessions and the need for those possessions.
· One’s own circle of friends and family: This source increases the ability of the entrepreneur to access a larger pool of capital. It includes more people, family and friends who might give the small business an outright gift or a loan with zero to small interest rate and liberal repayment terms.
· Banks or a finance company: Here the business owner applies to a bank or a finance company for a loan or a credit line. This will require good and solid credit history, and might even demand a personal guarantee and / or collateral. This source is larger but more expensive. To apply for the loan, the small business needs to prepare a detailed business plan with a complete cash flow projection and subject itself to formal documentary process. Banks have tightened their lending and have made it difficult for small business because of fear of business default. According to recent reports small business loan defaults are up dramatically. On the other hand, According to David Dooks, BBA statistics director:
Recent Bank of England surveys have suggested that while the availability of finance for business has been improving, loan application volumes are subdued. BBA figures show small business demand for new loans is running below corresponding levels of a year earlier and appears to have stabilised at just under £600 million a month. This lower volume of lending is not surprising, as small businesses, under pressure from difficult trading conditions, are repaying borrowing and postponing their investment intentions. Despite this economic backdrop, structured lending to small businesses continues to rise and is 4% higher than a year earlier, while more than 2,000 small businesses are establishing a new banking relationship every working day."
· Government sponsored programs: There are programs that promote economic development or provide assistance to help particular types of people, the youth, women and minorities to succeed in business. These programs have certain eligibility requirements, are tedious, and require patience.
· Grants: Another source of capital is government and foundation grants. This might be appealing, but the fact is that it is not easy to locate, qualify for, or even obtain. The supply of these grants is limited and the competition is extremely high.
· Investors: In this area we mean angel investors, private lenders and venture capitalists. All may be excellent sources. But to access these funds, start ups might not find it easily as an already existing business would. Nevertheless, if the entrepreneur has the right business idea, at the right time for it, backed by a detailed and practical business plan, the investors might give it consideration. According to a Canadian source, angel investors invest billions of dollars supporting business proposals. So what do they need to approve a proposal? There are several things:
· A good return on their investment; better than they can do on the stock market
· A good business idea and a good reason to invest
· A solid and complete business plan
· A competent, capable, and trustworthy management team
Concerning venture capital, Mark Heesen, president of the National Venture Capital Association says: “Angels and venture capitalists [are] looking at early-stage deals more seriously today than in the recent past.” Yet, there is skittishness about investing, particularly those who have lost considerable net worth in the stock market decline. They are holding off. This, however, will not last forever. There is a lot of liquidity in the markets and soon we shall see an uptick when they rebound.
Are the financial wells dry? No! Can small business access sources of capital? It depends! Some industries are riskier and thus have a harder time finding funds. Nonetheless, there is liquidity, but fear has paralyzed everyone. The valves are reopening cautiously so no more financial floods will happen. The business enterprise that possesses the fundamentals and the right ideas might be able to access these sources of funds. However, this will require due diligence and patience.
Funds, Where Are You? Capital, Where Can I Find You?
By Eddy Sumar – Feb 1, 2011
Since the collapse of the housing market and the demise of Wall Street in 2008, the world has witnessed a roller coaster of emotions as well as a deep plunge in small business financing. According to a CNN report, “Lending to small businesses all but stopped….Few investors wanted to buy up small business loans on the secondary market, so few banks wanted to make the loans.” In recent weeks we have been hearing reports from Washington underscoring what President Obama articulated concerning small business. The administration has expressed that it is setting aside $30 billion to encourage lending to small businesses to aid the economic recovery. However, the financial world is yet to open its fists and grant the requests of the small business community. So, where can the small business find the needed funds to start up or grow the business?
There are several sources of capital that a small business can pursue.
· One’s own resources: The source is one’s savings, personal property, and possessions. This source could be immediate and requires less effort and no formal application for credit approval. However this source is limited and depends upon the individual’s wealth, possessions and the need for those possessions.
· One’s own circle of friends and family: This source increases the ability of the entrepreneur to access a larger pool of capital. It includes more people, family and friends who might give the small business an outright gift or a loan with zero to small interest rate and liberal repayment terms.
· Banks or a finance company: Here the business owner applies to a bank or a finance company for a loan or a credit line. This will require good and solid credit history, and might even demand a personal guarantee and / or collateral. This source is larger but more expensive. To apply for the loan, the small business needs to prepare a detailed business plan with a complete cash flow projection and subject itself to formal documentary process. Banks have tightened their lending and have made it difficult for small business because of fear of business default. According to recent reports small business loan defaults are up dramatically. On the other hand, According to David Dooks, BBA statistics director:
Recent Bank of England surveys have suggested that while the availability of finance for business has been improving, loan application volumes are subdued. BBA figures show small business demand for new loans is running below corresponding levels of a year earlier and appears to have stabilised at just under £600 million a month. This lower volume of lending is not surprising, as small businesses, under pressure from difficult trading conditions, are repaying borrowing and postponing their investment intentions. Despite this economic backdrop, structured lending to small businesses continues to rise and is 4% higher than a year earlier, while more than 2,000 small businesses are establishing a new banking relationship every working day."
· Government sponsored programs: There are programs that promote economic development or provide assistance to help particular types of people, the youth, women and minorities to succeed in business. These programs have certain eligibility requirements, are tedious, and require patience.
· Grants: Another source of capital is government and foundation grants. This might be appealing, but the fact is that it is not easy to locate, qualify for, or even obtain. The supply of these grants is limited and the competition is extremely high.
· Investors: In this area we mean angel investors, private lenders and venture capitalists. All may be excellent sources. But to access these funds, start ups might not find it easily as an already existing business would. Nevertheless, if the entrepreneur has the right business idea, at the right time for it, backed by a detailed and practical business plan, the investors might give it consideration. According to a Canadian source, angel investors invest billions of dollars supporting business proposals. So what do they need to approve a proposal? There are several things:
· A good return on their investment; better than they can do on the stock market
· A good business idea and a good reason to invest
· A solid and complete business plan
· A competent, capable, and trustworthy management team
Concerning venture capital, Mark Heesen, president of the National Venture Capital Association says: “Angels and venture capitalists [are] looking at early-stage deals more seriously today than in the recent past.” Yet, there is skittishness about investing, particularly those who have lost considerable net worth in the stock market decline. They are holding off. This, however, will not last forever. There is a lot of liquidity in the markets and soon we shall see an uptick when they rebound.
Are the financial wells dry? No! Can small business access sources of capital? It depends! Some industries are riskier and thus have a harder time finding funds. Nonetheless, there is liquidity, but fear has paralyzed everyone. The valves are reopening cautiously so no more financial floods will happen. The business enterprise that possesses the fundamentals and the right ideas might be able to access these sources of funds. However, this will require due diligence and patience.