Opinions expressed by Contractor the contributors are theirs.
It is difficult for many small and medium enterprises (SMEs) to navigate through various loan programs and debt consolidation opportunities, especially during an unprecedented global pandemic. Unlike consumers who are protected by the Consumer Financial Protection Bureau (CFPB), business owners are often not covered by the same guidelines, presenting individuals with fewer protections and new alternative finance companies that do not provide always the help needed.
Therefore, consumers often seek matchmakers who can help them navigate the application and approval process, while providing them with the necessary basic training on how to receive inexpensive capital with training on the products.
According to Biz2Credit Small Business Loan Index, small business loan approval rates have slowly increased this year, with approval percentages at major banks rising from 14.2% last November to 14.3% in December. However, over the same period, small bank approvals fell from 19.9% to 20.1%.
Here’s how SMEs had to find new, alternative routes to capital, allowing business owners to access funds faster than before – and without the headache of trying to navigate the tedious legalese of paperwork.
Related: So You Want Your PPP Loan Forgiven? Be sure to submit this request
Increase debt before selling shares
At the start of the pandemic, many business owners would have been told by hedge funds, private equity groups and venture capital firms that they had been approved for loans. This after many months of negotiating term sheet agreements, often over 100 pages, only to find later that they would not receive the funds until several months after signing their loan documents. Others would simply receive vague reasons for rejection or a complete lack of correspondence, and calling the Small Business Association (SBA) would only keep you on hold for hours before someone told you to wait for an email response. -mail.
Some companies sell their equity before raising debt, taking immediate investors with immense pressure from the start. Many companies believe that investing in flashy technologies and high-end CRMs up front will set the business in the right direction and keep it attractive to the market.
Wrong. One of the biggest strategies a newly launched business can have for itself is to prepare for the worst case when it happens (not if), which in this case means starting lean, mean and looking for ways to reduce expenses to a minimum.
Networking and the Chamber of Commerce are your friends
How many business owners do you know who understand the difference between factoring and a merchant cash advance? In most cases, these owners want fast working capital with an affordable return on investment. If you don’t have the necessary network of connections and network, this is where membership in your local chamber of commerce comes in, as well as attending trade conventions and local business groups.
Small and medium-sized businesses, the self-employed, and minority-owned businesses have repeatedly been left out throughout history. Unfortunately, the pandemic has only exacerbated this problem. The Paycheck Protection Program and government-backed EIDL loans were set up to help small businesses, but were initially widely distributed to companies like Shake Shack and TB12.
According to New York Times, data collected on the racial breakdown of the PPP allocation has been sparse, illustrating New York as a problematic area where lenders were not required to collect demographic details about their borrowers. Ultimately, economists have consistently found signs of shortcomings here.
Additionally, a Federal Reserve Bank of New York analysis noted that some counties with large numbers of black-owned businesses — including the Bronx, Queens and Wayne County, MI (which includes Detroit) — had surprisingly low concentrations of relief loans — out of the 996,000 loans that included information about the race of the borrower, 71% of the dollars went to white-owned businesses.
Related: 4 Ways Businesses Can Avoid Loan Scams and Predatory Lenders
Beware of your reliance on government-provided funding
Congress approved billions of dollars in aid for small businesses to help them protect their employees during the pandemic, but a large portion of those businesses never saw the funds. When the PPP was first launched in April 2020, banks quickly moved towards larger loans and more established businesses, because in their world they were more lucrative. According to the New York Timesthe program’s largest lender (JPMorgan Chase) even refused to provide loans under $1,000.
Forbes went on to report, “…from April 2020 to May 2021, PPP provided millions in loans to help keep businesses afloat during Covid-19. Since the deployment in 2020, more than 11.8 million PPP loans totaling nearly $800 billion have been approved, according to data from the US Small Business Administration as of May 2021. While many early PPP borrowers have already applied for and received loan forgiveness, SBA data show that at the end of July, 18% of 2020 PPP loan borrowers had not submitted forgiveness requests.
Small and medium-sized businesses still struggle with the uncertainty of government loans and rising inflation, as do typical operating costs. SBA EIDL loans were initially capped at $150,000 in 2020. The SBA increased this amount to $500,000 in April 2021 to help businesses that were still struggling.
With the end of the PPP, SMEs should consider taking risks again and growing their business. Small businesses still don’t know where to turn, so having private groups that understand how to provide customer-focused solutions that help educate small business owners on the best financing available will only serve to provide SMEs with a alternative financing that doesn’t set business owners up for failure.