Tips and trends for small business financing

With around 543,000 small businesses starting up in the USA every month, it has never been more important for the owners to get their small business financing correct from the outset. With almost 28 million small businesses in total in the USA, it’s a thriving market out there.

A small business is defined as an organisation with only five workers or less, and reports show that more than 50{ed162fdde9fdc472551df9f31f04601345edf7e4eff6ea93114402690d8fa616} of working Americans are currently employed within small businesses.

Small business financing

But just having a creative idea and a business plan is not enough – entrepreneurs will inevitably need funding to get their small business, however, small it may be, off the ground and running successfully. So what should they be prepared for?

  1. Beware of unscrupulous online lenders

Online lenders are drawing in entrepreneurs with their small business financing, offering quick approval processes and money in the bank. However, it’s important to read the small print as sometimes their terms and conditions can be unclear. On the positive side, online companies are putting the pressure on traditional banks and encouraging them to support small businesses. They can also help entrepreneurs’ businesses to get off the ground.

  1. Don’t rule out banks for small business loans

Smaller business loans had been very hard to come by recently with 79 percent of small business loans still coming in at more than $350,000 and to be eligible businesses had to have a minimum of a two-year financial history. However, partly due to the threat from the online lenders, banks are now moving towards providing lower value loans and helping to find small business funding options.

  1. Don’t ignore the baby boomers

A quarter of all entrepreneurs is between 55 and 64 – the baby boomers. These small business owners are often able to support their small businesses by using up retirement funds and savings. The Rollover as Business Startup (ROBS) strategy can fund their small business completely, or it can work alongside a loan. It has become extremely popular as an alternative option for this particular group of small business owners.

Does small business funding add up?

So with those three tips in mind, what is the likelihood of actually securing small business support and what kind of successes have other entrepreneurs experienced up to now. Let’s have a look at whether the numbers do add up.

Firstly, let’s look at the positive and vital contribution which successful small businesses make to the economy. Since the early 1990s, small businesses have been responsible for creating more than 65{ed162fdde9fdc472551df9f31f04601345edf7e4eff6ea93114402690d8fa616} of all new jobs.

This time last year, small businesses – by definition that is an organisation earning less than $5 million revenue – were enjoying a 7.8 per cent growth in their sales, which is an increase again from the year before.

Secondly, another report highlighted that the employment level in companies with fewer than 50 staff members, increased last December than it had since the previous summer, with around 95,000 jobs created.

So is it still difficult to find finance?

A report examining the American Dream of owning your own small business revealed that, despite all the positive news, around 3 in 10 owners were struggling to reduce their operating costs and 1 in 4 were struggling to plan when there were unexpected costs. Almost a fifth of small business owners surveyed said they were thinking of closing down because of lack of cash flow. 

These issues caused many small businesses to apply for funding, many of them applying more than once.  One in five of those interviewed said they had been turned down for finance in the past 60 months and 45 per cent of those, repeatedly been rejected.

As a result over a quarter of small business owners, according to the report, ended up financing themselves using their personal accounts, credit cards, or help from friends, putting themselves and their businesses at risk.

Securing small business financing can be complicated, and it is always best to seek professional help and advice to ensure you have the best possible chance of a good outcome for your finance application and a positive future for your business.

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