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BFS Capital Blog

Is the Small Business Financing Picture Improving?

March 13, 2014

If you’ve never heard of the SBA’s Office of Advocacy, you’re not alone. It’s an independent voice for small business with the federal government, as well as the source of small business statistics. Advocacy’s central role is putting small business views and concerns in front of Congress, the White House, federal agencies, the federal courts and state policy makers. Whew!

Of interest to small business owners everywhere is the updated report, Small Business Finance, Frequently Asked Questions, just published by the Office of Advocacy. The 2014 edition says that credit conditions for small businesses have been gradually improving. That’s good news for business owners and also for a U.S. economy still struggling to fully get back on its feet. The Small Business Finance report covers a variety of topics and answers questions on small business financial borrowing in general, government financing and related policy issues. You can read the full report here, but here are a few of the highlights:

Where small business financing is now.

While the report points out that even commercial banks have eased their lending terms and conditions, things are still tight if you compare them to before the recession. But the percentage of small businesses having trouble getting credit seems to be declining. All told, the agency says, small business borrowing totaled about $1 trillion in 2013:


    • $422 billion in credit from finance companies


    • The remainder from a mix of sources


How—and how many—small businesses are being financed.

Small businesses here are defined as having 0 to 499 employees and are described as a very diverse group whose financing needs vary greatly. Startups are in a category of their own, of course, but for established businesses, “owner investment” and “bank credit” are the two most widely used kinds of financing. The report says that a significant number of established businesses use no outside financing.

Depending on the source of the data, there are different stats on the percentage of small businesses that use financing. One source, The Kauffman Firm Survey, shows that half to two-thirds of young firms get infusions of capital, mostly from owners themselves or non-bank sources of funds. But then there’s Census Bureau data that says less than half of existing firms use expansion financing. Regardless of the actual numbers, the report says, the fact is that financing is a critical need for many businesses—many of which are high-growth job creators.

Why small businesses need financing.

There are four main reasons, and business owners tend to choose different sources of financing, depending on the purpose:

    • Startup


    • Purchasing inventory


    • Expansion


    • Strengthening the business

To those of us in the business financing industry, some of the statistics aren’t surprising at all. But there are a few surprises. One is how much small business financing still comes from owners themselves. We’re not sure where these funds come from— Home equity? Retirement savings? The report does say that a lot of small business owners still use credit card as a source funds, and if you’re a startup, you’re probably tapping friends and relatives for funds.

In our view and that of a number of industry experts, the small business financing picture has improved, in part, because of so-called “alternative” lenders, like us at Business Financial Services. We still think we offer some better options for businesses that are in growth mode. Here’s why:

    • We explore in-depth and consider a business’s operating model and growth projections;


    • Our application and approval process are streamlined and comparatively uncomplicated; and,


    • We turn around quick approvals and deliver funding in as few as five business days.

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