With small-business lending constantly undergoing changes and challenges, the College of Business’ Florida SBDC at Florida International University (FIU) addressed the concerns of lenders and business owners by sharing data, trends and insights regarding small-business credit.
The Business Lenders Forum at FIU, held April 27, highlighted the Federal Reserve’s 2016 Small Business Credit Survey: Report on Employer Firms, which examines the business conditions and the credit environment faced by small business owners, particularly those with less than $1 million in revenue. The Federal Reserve Small Business Credit Survey is a collaboration among all 12 Reserve Banks.
The study found that, although many businesses with $1 million or less in annual revenue were profitable, more of them faced economic difficulties than those generating more than $1 million in revenue. All businesses with fewer than 500 employees are considered small businesses by the government, and all firms in the survey were classified as part of this group.
According to the survey, businesses with less than $1 million in revenue were:
- More likely to face financial challenges (67%) than $1 million+ revenue firms (47%)
- More dependent on personal finances (25%), reliant on personal finances and exclusively on a personal credit score (48%) compared to larger firms (11% and 25%, respectively)
- More likely to face financing shortfalls, with 67% of applicants reporting a gap compared to 45% of larger firms
- Notably less successful at obtaining financing at large banks (45% success rate) than larger firms (72% success)
“These issues are even more pronounced for the smallest firms, which are less likely to receive necessary funding and are more likely to rely on personal finances to operate,” said
Karen Leone de Nie, assistant vice president in the community and economic development (CED) group at the Federal Reserve Bank of Atlanta. “Our objective is to build an evidence base of what helps community businesses grow.”
Nationally, the Federal Reserve study revealed that smaller businesses often have more success securing credit from community development financial institutions (CDFIs) and small banks but more often look to large and small banks for their capital needs.
Research and prepare.
“For younger businesses, the most difficult issue is access to capital and financing,” said Mike Myhre, state direct of the Florida SBDC Network. “Our capital access specialists assess if a business needs capital, help identify resources and with document preparation as well as presentations for lenders, investors or clients.”
During the discussion, attendee Fadwah Halaby recalled the challenges she faced when seeking working capital to keep Midwife360, a home birth practice she launched in 2014, in business.
“We’re working in shark-infested waters,” said Halaby, a certified nurse midwife. “People are offering loan terms that aren’t good for businesses.”
In early 2016 she contacted a loan broker and got a short term, high interest loan that required daily payments. The transaction put Halaby’s name on a loan brokerage list and she received daily calls offering to lend her money. That fall, she found a better deal from another broker – lower interest rates and no daily payment.
Halaby soon learned, with guidance from SBDC counselors, that there are safer and better financing options for small businesses. “It wasn’t until I started doing research on the SBA that I learned I can probably get a better loan, with lower interest rates, to obtain working capital,” she added.
Florida SBDC at FIU’s team of business consultants provides no-cost business consulting to entrepreneurs and small-business owners on issues including access to capital, financial management, international business, marketing, and government contracting.
One of its key missions is to share knowledge, expertise and tools that will facilitate more lending to small businesses. Since it began in 2014, the College of Business’ Florida SBDC at FIU has helped launch 55 businesses in South Florida and assisted local entrepreneurs and small-business owners access more than $29.9 million in capital.
Florida SBDC at FIU consultant Marjorie Weber pointed out that lenders today are more receptive to loan or financing requests from small businesses.
“There is a process to follow,” Weber told attendees at the Business Lenders Forum. “And if you do, there’s cash out there.”
Did You Know?
Since its launch in 2014, the College of Business’ Florida SBDC at FIU has made significant impacts on small businesses in South Florida:
- $604.9+ million in additional sales generated by Miami-Dade small businesses
- $29.9+ million in capital accessed by local entrepreneurs and small-business owners
- 55+ new businesses launched
- 1,088+ entrepreneurs and business owners assisted one-on-one by SBDC at FIU consultants
- 4,003+ jobs created, retained or saved in Miami-Dade County