Small Business Owners Find it Hard to Stay Afloat |
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by: Janna Weiss
In these troubled economic times, it seems that everyone is feeling the pain of the credit crunch. From the working class all the way to the national government, people are finding it hard to obtain loans that were readily available as recently as last year. Amid the rhetoric about Wall Street and Main Street, one class of people is largely overlooked: small business owners.
For businesses to thrive, they need financing. Small business owners and entrepreneurs have it rough. Every business entails start-up costs. Plus, there has to be enough money to keep the business afloat until it attains profitability – which can take years. With banks and lenders shutting their doors to everyone with less than stellar credit, what can small business owners do to make ends meet?
For many, it’s a balancing act to stay on top of personal finances and business costs. With an unprecedented number of small business loans getting declined – the Small Business Administration approved 28,000 fewer loans in 2008 – owners are tapping their savings and retirement funds and maxing out their credit cards just to keep their dream alive.
Sadly, some of these dreams are currently on life support and fading fast. Skyrocketing food and fuel prices have made business ownership a costly endeavor. Financing is scarce, customers are making fewer purchases, and those who do buy from small businesses are having a tougher time paying up. Last year, it took an average of 30 to 60 days for a small business to receive payment. Now the average is 120 days. Says Tony Wilkinson, president of the National Association of Government Guaranteed Lenders: “I've been at this since 1980, and I've never seen it this bad."
Credit cards, especially those designed for small business owners, fill in the financing gaps. But the credit crisis has brought with it higher fees and lower spending limits, making this method of financing less economical than before. Home equity is also in a slump.
Some business owners turn to private lenders for their loans. If your business is industry-specific, you might be able to find a private lender willing to back your venture. You could also explore equity financing, giving up some of your interest in the company in exchange for money. Relatives are another good source for financing. They’re usually more generous and less stringent about your repayment terms.
To secure funding from any source, you’ll need a great business plan. Sell your idea and back it up with hard data. Explain why the business is a good idea, and draw up a timeline for your profitability. When lenders see that you’ve done your research, they will be more likely to take a risk and invest in your venture.
Small businesses employ 116 million workers and crank out half of the U.S. gross domestic product, according to the Commerce Department. If they fail, our whole nation will experience the fallout. Here’s to brighter a financial future for us all.
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