A recent study by the National Federation of Independent Business finds a disconnect between the views of lenders and small business owners regarding the availability of credit: Lenders believe credit standards have not changed or have eased over the past year, while small-business owners think credit standards have tightened significantly.
The NFIB study tends to support the view of entrepreneurs. Because more small businesses sought credit in 2011 than in 2009 but only the same number got it, the study infers that credit standards must have stiffened.
In general, the study found that it was much easier for entrepreneurs to renew existing loans and credit lines than it was for them to get new loans or credit lines. And small-business owners are increasingly employing personal rather than business credit cards for business purposes.
While banks remain cautious in their lending to entrepreneurs, alternative sources of funding have continued to evolve. Government programs that provide capital to entrepreneurs, while less numerous than they used to be, still exist. Meanwhile, crowdsourcing and micro-lending can be effective ways to raise capital.
With crowdsourcing, instead of going to a traditional lender, a business solicits loans from a large group of people, typically through an online community established by a for-profit or nonprofit organization. For example, a number of Western Pennsylvania start-up and small businesses have raised capital through Kiva, a non-profit organization that enables people to loan funds to small businesses and individuals all over the world.
The Jumpstart Our Business Startups Act of 2012 has made it much easier for an entrepreneur to raise capital through crowdsourcing, because the new law enables the crowdsourcing financial structure to be employed without being subject to strict Securities and Exchange Commission regulations.
-- Ann Dugan
Institute for Entrepreneurial Excellence
Business Workshop is a weekly feature from local experts offering tidbits on matters affecting business. To contribute, contact Business Editor Brian Hyslop at email@example.com.