Academic journal article Entrepreneurial Executive

Financing for Small Business in a Sluggish Economy versus Conflicting Impulses of the Entrepreneur

Academic journal article Entrepreneurial Executive

Financing for Small Business in a Sluggish Economy versus Conflicting Impulses of the Entrepreneur

Article excerpt


Small businesses continue to face challenging times as the nation's economy struggles to improve. Even so optimism among small business owners is on the rise. More than half (56%, up from 48% last fall) have a positive outlook on business prospects over the next six months. In spite of the promising outlook, these signs of recovery do not translate into immediate plans for growth. The top priority of small business owners at this time is maintaining their current business and sources of revenue (31%) followed closely by growing their business (29%, down from 37% last spring) (The American Express OPEN[R] Small Business Monitor, 2012). The flat economy, reduced business equity values and the resulting impact to credit and collateral has made capital formation for small businesses through bank financing difficult to obtain. During this time of economic uncertainty many small businesses that would meet bank lending criteria and could use the additional capital chose not add additional debt to their balance sheet. Those entrepreneurs believe they have few options for their business and are just trying to maintain the status quo.


In order to determine if access to capital was the predominant issue for small businesses during this current weak economy, Middle Tennessee State University's Tennessee Small Business Development Center (TSBDC) and Center for Organizational and Human Resource Effectiveness (COHRE) conducted a phone survey of small business in the state of Tennessee. The survey was developed to investigate which Tennessee small businesses are obtaining business financing, what differences exist between Tennessee small businesses that receive financing and are denied financing, and which banks are lending to small businesses in Tennessee.


To conduct the survey, COHRE obtained a list of business contacts from Info USA. The contact list was restricted to small businesses operating in the state of Tennessee, which TSBDC defined as businesses with less than 500 employees that earned annual revenue of less than $10 million. The TSBDC and COHRE developed a 40-question survey, which inquired about a business's financing over the previous twelve months. The survey was developed using queries posed by TSBDC and questions from the U.S. Small Business Administration's (SBA) 2003 Survey of Small Business Finance. The survey was piloted on a select few small business owners known to COHRE employees.

Over the course of the survey development and administration, five phone survey administrators were hired and received identical training on survey administration, small businesses and the history of TSBDC. While conducting the survey, phone survey administrators followed a branching script adapted from the script used in the SBA's 2003 Survey of Small Business Finance.


Of the businesses contacted, 89 chose to participate in TSBDC's small business finance survey. Of these 89 participating businesses, only 14 businesses indicated they had applied for loans in the twelve months prior to being surveyed, and of these 14 loan applicants, 11 businesses were granted loans by 11 different banks. Business pessimism is driving borrowing decisions. In fact, 60% of the respondents indicated they did not want to apply for financing which is similar to the 56% of respondents in the American Express OPEN[R] Small Business Monitor (2012) survey who have no immediate plans for growth. Businesses are taking a wait and see approach due stricter bank lending criteria coupled with the poor economy in general.


Reduced bank lending coupled with small business loan defaults sets the stage for tightened lending standards. As a result, small businesses have found it difficult to secure loans. At the same time, many bankers have reported weak demand from qualified small business borrowers. …

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