credit crunch

By Rieva Lesonsky

The economy is starting to hum again, and small business owners are reporting increased demand for their products and services. But meeting those demands requires capital, and there’s good and bad news on that front.

First, the (relatively) good news: According to the National Small Business Association’s 2014 Year-End Economic Report, the number of small businesses who say they’re suffering from a credit crunch is down from 66 percent six months ago to 61 percent today. Now, the bad: One-third of small businesses still say they’re having trouble getting the financing they need.

Possibly as a result of difficulty obtaining traditional types of business financing, there was an increase in the number of small businesses using credit cards and business earnings to finance their companies (36 percent and 35 percent, respectively). Both types of financing are easy to access, which make them fast solutions both for startups and for existing companies that lack a strong financial track record.

Although using credit cards for business financing can be risky, there are some positive reasons small businesses may be turning to credit cards. Fewer small business owners than six months ago say the terms of their credit cards have worsened, and the average interest rate on credit cards dropped to 13.05 percent.

The percentage of businesses carrying debt has declined from six months ago, as has the average amount of debt (currently about $933K). But absence of debt isn’t necessarily a good thing for a small business; it could mean you can’t get the financing you need. In fact, that seems to be happening: The study notes “a concerning trend” in which more small business owners say the inability to get financing is keeping them from increasing sales or buying the inventory they need to meet demand. In fact, almost one out of five small companies can’t meet increased demand for their products or services because they can’t get financing.

Yes, the economy is improving, and customers are finally showing signs of spending—but if you can’t get the money you need to provide what they want, does it matter? Fortunately, there are ways to get the money you need. Loans from credit unions, vendor credit, invoice-based financing and tapping into alternative lending sources are all possibilities to consider. Whatever you do, don’t let a lack of capital keep you from taking advantage of the opportunities that are finally arising.