Loans Still Pose Challenge for Small Businesses

While the ability of small businesses to obtain capital has improved in recent years, getting a traditional bank loan is still a tough obstacle, a new study finds.

Research from Pepperdine University’s Graziadio School of Business and Management and Dun & Bradstreet revealed that over the last four years, there has been a 13 percent increase in access to capital for small businesses. However, most are getting that money from personal assets and not banks or online lenders.

The study revealed that only 38 percent of small business respondents qualified for a bank loan within the last three months, compared with 70 percent of mid-size businesses. While that’s up from 30 percent in the first quarter of the year, it is down from a four-year high of 46 percent in the third quarter of 2014.

When it comes to alternative lenders, small businesses had the most success with merchant cash advances. The research found that 41 percent of the small businesses surveyed were able to obtain a merchant cash advance, compared with just 20 percent who were able to get a regular loan from an alternative lender.

Most small business owners are relying on their own personal assets to help fund their business. Specifically, more than 70 percent of those surveyed used personal savings, 45 percent used personal credit cards and 19 percent used cash from the sale of personal assets.

Crowdfunding is growing increasingly popular with small businesses. The research found that 19 percent of small businesses that sought financing in the past three months used crowdfunding as a funding source, compared with just 7 percent of mid-size businesses.

Jeff Stibel, vice chairman of Dun & Bradstreet, said when they began conducting these studies four years ago, small businesses were reeling from the effects of the Great Recession.

“Since then, we have seen steady progress for small businesses being able to acquire the capital they need, although the financing is still predominantly not coming through traditional lenders,” Stibel said in a statement. “It will be interesting to see how the new option of crowdfunding will affect small businesses, as our study has shown more eagerness to use that option as compared to their mid-sized counterparts.”

Although access to capital improved over the past three months, the number of small businesses needing it declined. Overall, demand for capital from small businesses dropped from 38 percent in the first quarter of the year, to 32 percent in the second quarter.