How Small Businesses Plug the Financial Gap

Although a huge portion of the professional landscape, small businesses continue to be underserved by traditional banking institutions. The National Small Business Association 2015 report shows that 99.7% of employer firms are small business. Despite being such a large portion of the market, however, about 50% of small business owners have reported trouble obtaining funds.

The lack of support these businesses face can have crippling effects. Small businesses without access to capital report being unable to grow or finance increased sales, based on NSBA’s Small Business Access to Capital Survey.

In modern markets, the inability to grow and adapt is a death sentence for any business.

Small business owners are also wary of taking large loans from big banks. These larger corporations are inherently more interested in the bottom line, often dehumanizing the small business. There can be situations in which large banks will demand payment from small business, with as little as 15 days to comply; these loans average in the hundreds of thousands of dollars, having a devastating effect on the business and the lives attached to it.

The difficulty of obtaining traditional bank loans, and the risks associated with them, have forced small business owners to seek alternative means of funding.

Credit cards have increasingly filled that gap. Credit cards provide several benefits over long-term loans. With credit cards, the small business owner needs to only borrow what he needs right down to the dollar. This allows the business owner more freedom and control over their finances by avoiding high monthly loan payments.

The problems facing small businesses regarding access to capital have gained attention at the highest of levels. Congress has recognized the growing instance of small businesses turning to credit cards to meet capital needs. The findings from the Small Business Credit Card Act of 2016 note that 31% of small business owners use credit cards as a source of financing in 2012. Credit cards, the second most common source of financing today, have doubled in use since 1993!

Under the “Truth and Lending Act”, small businesses will be extended certain credit card protections. This shows that even Congress acknowledges that small businesses have been underserved by traditional institutions.

The modern market reaches further and moves faster than ever before. New technologies that the average business owner couldn’t have afforded years ago are now becoming available to them almost every day. These rapid changes require the business owner to have the ability to adapt quickly.

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