There is no question that the country has been mired in economic turmoil over the past year. Despite the conditions, the market is still filled with entrepreneurs looking to launch a business and small business owners looking for a way to get ahead. Many of these individuals (including some of our readers) will be looking for assistance in the form of loans to get off the ground or expand.
In the past, the logical source for these funds would be to turn to the country’s banking institutions; however the loan market for small businesses is quickly drying up. According to a recent CNN Money article, the Small Business Administration’s primary loan program has seen an 80% decrease in loans from 6,100 in FY 2008 to 1,250 during the 2009 fiscal calendar (see lending chart on the right).
Despite this shrink, there is still credit available for small business owners. Instead of the traditional loan, banks are now steering would-be business lenders to credit cards. The downside to this is that the fixed rates of the loans are now giving way to variable interest rates that can change at the bank’s will. An example of these high rates featured in the CNN piece was JP Morgan Chase, who unveiled their new small business credit card line along with rates up to 30%.
The lack of loans and high interest rate credit cards are two factors that will be something to consider for small business owners for the foreseeable future. The SBA currently noted in a recent survey that 60% of small businesses have used a credit card for business capital over the past year. That number only becomes alarming if mixed with spending above and beyond these businesses’ means. While this is not always an easy thing, it is prudent to keep spending in line to avoid long-term debts (click here for six business credit card management tips). You can also maximize the use of credit cards for your business by finding the card that best fits your business through points and additional perks. BusinessWeek recently published a piece that offers things to consider when choosing a credit card for your business that may help you choose company X over company Z.
Has the credit crunch affected the growth strategy of your company? Or did you find a different avenue for raising capital for your business? We’d love to hear from you.
