Small Business Owners Needing Alternative Funding Sources More and More.

Oct. 9, 2007 - PRLog -- A recent survey of small business owners commissioned by New York -based Capital Access Network (CAN), American entrepreneurs are facing a near crisis when it comes to obtaining financing needed to maintain and/or expand their businesses. In recent years, American small businesses have been credited with jumpstarting the economic recovery, moving many unemployed workers into entrepreneurial endeavors. Today’s survey data shows 79 percent of small businesses are undercapitalized and as many as 90 percent run the risk of filing bankruptcy or shutting down in the first five years. Those same small businesses that once drove economic growth are having little success in finding accessible working capital to stay competitive and grow.

Approaching and securing traditional funding sources like banks or the Small Business Administration (SBA) have been complicated by the flood of hurricane-related disasters and rising interest rates. Respondents cited a variety of reasons for why it was difficult to obtain small business funding including rising interest rates, difficulties with excessive documentation, cumbersome applications and required collateral. The research, highlighted in the first edition of a quarterly series titled "Capital Access Network Small Business Barometer" indicated that these businesses have a low awareness of newer funding options and might benefit from alternative funding options.


The survey was conducted nationally among small business operators who accept credit cards as a form of payment.  It revealed compelling data about the state of small business finances: •   80 percent of small businesses have a greater need for funding today than they did one year ago. •   82 percent of small businesses believe it is more difficult to get financing today than one year ago. •   The majority of respondents (56 percent) also indicated that they would consider starting a business in a new industry if they had access to more funding options, helping fuel the American economy.

Nearly all extensions of capital to small businesses, whether in the form of credit cards or commercial loans, are tied to the prime rate. For business owners, the impact of these rising rates can be severe, leading to unforeseen and unexpected costs.

The survey asked small business owners to identify the funding methods that they find appealing, and inquired about the sources of working capital they have applied to in the past. The survey results reinforced that while some forms of funding may be appealing on the surface, many are not always feasible based on the business’ current situation.  90 percent of respondents found traditional bank loans to be appealing, yet only one in four actually sought a bank loan despite needing money.  Similar results were found with SBA loans which initially appear very appealing to small businesses, yet only one in seven businesses actually sought an SBA loan. When asked about other considerations, small business owners were mixed. •   More than 55 percent of small business owners do not believe loans from friends or family are appealing. •   More than 45 percent of small business owners do not believe home equity lines or second mortgages are appealing. The data found by the survey is consistent with findings released recently by the Federal Reserve which said that changes in regulations and a sluggish economy had prompted small businesses to turn increasingly to non-banking financiers such as finance and leasing companies, brokerages, credit- and debit-card processors, venture capitalists, family, and individuals.  The Federal Reserve said that from 1998 through 2006, small firms’ use of non-bank financial companies for funding increased from 40 percent to 54 percent.  This movement to non-traditional financial sources is the continuation of a 20-year trend.   In 1987 only 25 percent of small firms used financing that was not provided by banks, thrifts, or other depository institutions.

The survey found a strong disconnect between how businesses have previously considered seeking funding and their actual behavior.  The survey also pinpointed a lack of awareness of Merchant Cash Advances, a funding method that has garnered some recent attention, as referenced in a May 8, 2006 Wall Street Journal article entitled “Capital Ideas.”  Merchant Cash Advances enable a merchant to employ their future credit card sales, an asset traditionally unrecognized by financial institutions, to raise working capital. The survey responses indicated a low market awareness level for Merchant Cash Advances. •   At least 73 percent of respondents were unaware that they can sell their future credit card sales in exchange for working capital. •   Only 6 percent had ever sold future credit card sales in order to get working capital. •   An overwhelming percentage, 92 percent, responded that they would find it appealing to have access to a financial product that could provide as much as $150K - $250K in working capital per revenue-generating location within 10-14 days. Generally, Merchant Cash Advance providers purchase fixed amounts of future credit card sales at a discount. Collection of the purchased credit card sales occurs automatically through the merchant’s credit card processor. The Merchant Cash Advance provider receives a fixed, predetermined percentage from each credit card sale.  Since it is sent a set percentage and not a fixed amount, the provider only gets paid when the business does, helping manage cash flow throughout the year.  No fixed payment schedule or application fees apply. For more information on business cash advance requirements and applications, merchants may log onto http://www.RapidCapital.biz

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About RapidCapital.biz:
RapidCapital.biz is a leader in helping small to large size businesses obtain working capital through a business cash advance. Their program uses a financial process known as accounts receivable financing in which they only deduct a small percentage of a business' monthly credit card receivables as payment. And this is
done automatically, so there are never any bills or late fees to worry about.

Website: www.RapidCapital.biz