Are big banks lending enough to small businesses? Anyone involved in the small business sector has heard this question as of late. Numbers prove that lending from large institutions has gone down due to the recent financial crisis (as the FDIC data reports, in June 2007, all big banks held just over $400 billion of small business loans, where in June 2011, they held just under $309 billion). But the real question is, are these banks morally obligated to be giving more?
The truth is it’s hard to say. Both sides of the issue have valid arguments. Small businesses are the backbone of America, and even more so, their ability to be job creators (one of the things we as a country need most at the moment) is unparalleled. In order to have this power, these companies need cash; cash to begin and cash to grow. In the past, the big guys have helped these little guys out. However, due to the effect that lending had on our economy in the recent years, banks have had to become more hesitant in their lending. But who can blame them? Given what happened last time, shouldn’t we be thanking them for being more cautious?
As seen, it can be tough to pick a side. What can be done? Capitalize on what can be controlled. For the moment, small businesses will have to be patient while the big banks become re-acclimated to lending. However, sitting and whining isn’t going to make it happen faster. Therefore, work with what you’ve got.
We’ve discussed before ways to access capital by really “thinking outside the box”. As mentioned, budgeting is an excellent maneuver to really shave off excess cost. Even a little goes a long way. Also, be ingenious in accessing different avenues. There are many interesting lending options out there.
However, in the midst of all this debate, there is a positive angle. With small businesses having trouble accessing cash from other sources, it will force them to look within. The easiest way to get cash is to get it from the people that already owe it to you.
OVER 50% OF SMALL BUSINESSES, according to a survey done by Aite Group, Visa and Cash Edge, find collecting to be the most difficult part of managing their cash. In fact, at least 5 to 10% of their accounts are delinquent. If small businesses were able to better collect that “lost” cash, even just 50% of it, think of the kind of cash they’d have available.
If a small business is doing $10 million in sales a year, their delinquent accounts range from $500,000 to $1,000,000. Imagine, if they focused on better managing these accounts, the amount of interest-free cash they’d have flowing in.
Small businesses need to learn how to better manage their accounts receivable. Creating these habits now will have a lasting effect in the future. These businesses will have perfected the practice of collecting their capital, which will create healthy financial habits and put them in an excellent position when banks are able to lend freely again.
In times like this where there are obstacles that create friction, being proactive, working with what is available instead of working against what isn’t, is always more productive.
So, WHAT IF THE BIG BANKS WON’T LEND? Realize it’s a good thing. It forces small business to look within, bettering their business from the inside out.