For awhile now, it’s been said that small business is the engine that will fuel a recovering economy. But, according to many, small business needs a boost, or in other words, needs more access to capital.
Recently, the House Small Business Committee held a hearing titled “Access to Capital: Can Small Business Access the Credit Necessary to Grow and Create Jobs?” Business owners and lenders discussed the economic environment, how to support job growth, what’s being done, etc. Sam Graves, R-Mo., opened the hearing with:
“As America seeks to recover from the worst recession since the Great Depression, we will be relying on our nation’s small businesses to help lead the way.”
He continued, saying small businesses need business loans and other sources of capital to expand and create jobs. For most small businesses out there, that’s the major hurdle for growth, and in turn, a big hurdle for the economy.
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The conclusion at the hearing was credit has been loosened and banks have more money to lend. However, bankers at the hearing said today’s borrowers aren’t qualified to get small business loans.
If you’re a lender, what do you think? Are you experiencing the same things as the lenders at this hearing? If you are a small business owner, what major hurdles are you facing that’s limiting your growth?
In 2008 it was relatively easy to qualify for a Patriot Express SBA 7(a) loan as we met all normal standards. Had equity in home that was greater than the loan I landed, had excellent cash flow, and use of funds was to acquire company that would increase revenue, profit and cash flow.
In 2010 no longer qualified for a bank loan as the home equity had vanished when home values across the region dropped by 40-50%.
I think the comment by the bankers is correct. Following traditional measurements the company is not worthy of a loan today and will likely be part of the continuing contraction. Without equity to back another, larger loan there is no play for a loan officer and for the majority of the smaller businesses to lend. At this size loan, the residence is still the major pledged asset. That is why the door is closed – very politely – on anything under $1 million.
Concluding, it is not the style of SBA loan that is the issue, it is the underlying issues with securing one. With a $250K SBA loan we could be paying invoices quickly, thus speeding growth for our suppliers, we could acquire a small company or two whose owner(s) want(s) to do something else, and hire people – if health insurance didn’t kill us. But that’s another topic.