Alternatives to Traditional Bank Loans Necessary

Working Capital for Staffing Firms To many of you reading this, it is probably not news at all. Small and mid-size businesses are finding it very difficult to secure the working capital, let alone growth capital, they desire for their businesses. This difficulty for small businesses to secure capital has been growing for years, now exacerbated with the recent credit crisis and recession. As many of our readers are in staffing or contingent workforce businesses, the problem is particularly acute, since banks have always been reluctant to lend to businesses with no hard assets and inherent swings in capital needs. As if we needed more proof that life was tough for an entrepreneur trying to raise capital, we recently read an interesting study [more]. Twice each year, Pepperdine University’s Graziadio School of Business updates and publishes the Pepperdine Private Capital Markets Project Survey Report. The summer 2011 report derived some depressing – although not altogether surprising – findings from its over 2,500 participants:

  • Nearly 95% of privately-held businesses owners report having the enthusiasm to execute growth strategies, yet just 53% report having the necessary financial resources to do so.
  • While many are desirous of securing bank loans, 54% were unsuccessful in obtaining financing at all, and only 27% were able to obtain bank loans.

And it is quite a shame. When asked where they are focusing their primary efforts today, business owners responded they:

  • will increase revenues from current products/services (55%); and they
  • will expand product and service lines (21%).

So, here we are in a struggling economy, small business owners want to grow and are willing to take risks and invest, but they cannot find the financial support to do so. This is clearly a story we hear over and over when talking with entrepreneurs in staffing.

The federal government has in fact noticed….although I’m not sure they are able to do anything about it (as shocking as I know that sounds). In June, Sam Graves (R-Missouri, US Representative and Chairman of the House Committee on Small Business), clearly acknowledged the ongoing disconnect between bank credit policies and the critical need for growth capital by small businesses. "his Committee has heard, on multiple occasions, that entrepreneurs cannot get credit and small businesses face significant cuts to their existing lines of credit. Bankers have told this Committee that they have capital but are nervous about lending because regulators might question the safety of loans to small businesses."

So where does this leave us? What options are available to entrepreneurs who dream of creating and growing their own small businesses? In her 2010 book, The Small Business Owner's Guide to Alternative Funding, author, Karlene Sinclair-Robinson, debunks the taboo images often associated with financing obtained through any means other than traditional banking, and explores various alternative methods to obtain capital. From family and friends, to asset-based loans, and factoring and accounts receivable financing, this guide offers a path toward stability and growth for the small business entrepreneur. We think that she is spot on and that you will find her book very helpful.

We’re always interested in learning more about how entrepreneurs are handling traditional bank loans vs funding. So please comment with your thoughts/ideas/questions. What is your recent experience with accessing capital to grow your business?

For more resources visit the Working Capital section of our website.