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Small Businesses Still Prefer Bank Capital Over Alternatives
Published on May 23, 2011
Read 'Small Businesses Still Prefer Bank Capital Over Alternatives' at 'Time to Start Up,' the small business blog by BizFilings.
Last Friday marked the conclusion of National Small Business Week, wherein business leaders and government figures took efforts to champion the role of small companies in promoting job growth, entrepreneurship, innovation and general economic prosperity.
A favorite figure thrown around by the U.S. Small Business Administration, which sponsored last week's activities, is that small firms contributed nearly two-thirds of all jobs created within the past 15 years. The sector also currently employs nearly half of all private workers.
"From the family businesses that anchor Main Street to the high-tech startups that keep America on the cutting edge, small businesses are the backbone of our economy and the cornerstones of America's promise," said President Barack Obama at a commencement ceremony in Washington, D.C.
"Throughout our economic recovery, persevering small businesses have helped put our country back on track," he added.
However, the celebration of small firms belies a number of deep-rooted challenges - namely that of access to financing opportunities.
The Capital Access Network released its latest Small Business Barometer this week, shedding light on how small businesses are obtaining working capital and their preferred methods of doing so.
Banks remain the most sought after source of financing, with 43 percent of small businesses claiming banks to be most desirable. But interestingly enough, only 34 percent of respondents reported turning to them as their first choice. Alternative providers and credit were cited as first choices nearly as much as banks.
"Small businesses must be vigilant in exploring alternative finance options," said Glenn Goldman, CEO of CAN. "While traditional bank loans may be preferred, they may not be the most available or best option for Main Street businesses. New products and features are making their way into the marketplace and are often a better fit and easier to access."
However, the study does little to settle the question of how much small businesses are affected by the credit crunch. Nearly a quarter of respondents reported that they have been rejected by banks for loan or credit card applications, but with other groups such as the National Federation of Independent Business stubbornly maintaining that over 90 percent of small businesses are meeting their credit needs, those figures do little to suggest otherwise.
At the end of the day, entrepreneurs forming a company are likely to face varying credit conditions that depend on location, industry and outlook.