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4 Things to Know About Business Debt

4 Things to Know About Business Debt

by spainops
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U.S. small business owners are feeling super-confident right now, and have even sunnier sights set on the future. According to a survey by the U.S. Chamber of Commerce Foundation, 40% of small business execs report enjoying higher profits than the same time last year. Nearly two-thirds (63%) expect to see profits soar even more in the next 12 months.

So confident are small business owners and executives that 40% plan to increase employee head count this year, 40% expect to make capital investments and 37% plan to raise prices. (No wonder they’re expecting higher profits.)

To achieve all this growth, small business owners in the survey are relying on banks and other sources of capital. In fact, 77% say capital from banks and other financial services sources is important to their continued success.

Access to capital tightened up during the Great Recession, but is easing now—at least for larger small businesses. Forty-four percent of those with 51-100 employees say their access to capital improved in the past year, compared to 31% of those with 11-50 employees and just 15% of those with 10 or fewer employees.

Only one-third of survey respondents say their companies used debt financing to get started, and 47% say their companies have never taken on business debt. Of those who did take on debt to start up, the most popular types of debt are private business loans (66%), credit card financing (59%), and personal loans (51%).

The more employees a business has, the more likely it is to use business debt for growth and to take on multiple types of debt or multiple lines of credit. While this is partly because larger businesses tend to be more established (and hence better credit risks), it could also mean owners of very small businesses aren’t taking the necessary risks to launch and grow their companies.

Is fear of debt holding you back from seeking a loan to start or grow your business? It shouldn’t. Keep a couple of things in mind:

  1. Banks aren’t your only source for startup or growth capital. To launch their companies, about three in 10 survey respondents got friends and family to lend them money. Nearly one-fourth took a bigger risk by putting their homes on the line with a mortgage or home equity line of credit. In addition, 3% have used a non-bank, market-based lender at some point.
  2. A whopping 88% of survey respondents who have taken on business debt say their experience with the lender was somewhat or very positive.
  3. Three-fourths say they rely on bankers as trusted financial advisors for their businesses. Choosing the right business banker can give you a second opinion on financial decisions affecting your business—not just loans and lines of credits, but the best ways to grow and finance growth.
  4. Selecting a smaller bank with close ties in the community can help you develop a more personalized relationship. Twenty percent of borrowers surveyed use commercial banks, 20% use community banks, and 18% use regional banks; just 14% use a multinational bank.

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