The National Small Business Association reports that small business owners are still finding it difficult to access the credit they need. In the 2012 Small Business Access to Capital Survey released each July, the Association reports that 43 percent of small business owners required capital in the last four years and were unable to find it.
Small businesses traditionally rely on bank financing, one of the most difficult financing methods for business development. Small businesses which rely on bank financing are prone to difficulty during credit crises. In the last four years, some 19 percent of small business loans were called early. When a loan is called*, a business has to repay the entire balance of the loan in 15 days or less, a strain which could put many small businesses into bankruptcy.
The study also shows that credit availability remains a concern for small business owners. Nearly one-third of all small business owners reported that their access to credit was eliminated or reduced in the past four years. Many small business owners use credit lines and unstable lines of credit which can be slashed in size at a moment’s notice.
Even more concerning is the connection between personal and business finance – new businesses are more likely to rely on personal financing including credit cards that are personally guaranteed by the owner, and home equity loans secured by the business owners home. Credit cards, lines of credit, and home equity loans were affected worst during the 2009 credit crunch. One third of business owners relied on personal financing to fund their business during the previous four years.
The report underscores the reality that small business grants are the most stable form of financing for new businesses. Small business grants are tax-free capital sources which are not ever to be repaid. Thus, business owners can finance their business with grants without worrying about a decrease to their credit line or a plunge in available financing.