Wednesday, July 8, 2009

Max out your credit cards, then borrow from friends and family

The double whammy of tightening credit markets and falling housing values are making it more difficult for small business owners to finance their businesses. Venture capital investments aren't a realistic source of capital for the great majority of new businesses, so they often rely on debt financing. A fairly common source is equity tied up in real estate; however, drops in housing values mean less equity to draw upon.
As home equity lines vanish, other avenues of small business financing are also running dry. More than 40% of small business owners polled in April by the National Small Business Association said the limits on their credit cards had been cut in the past year, and 63% said their interest rates went up. Bank lending is in freefall. Even with stimulus incentives, the SBA backed 30% fewer bank loans to small businesses last quarter than it did a year earlier. The agency's lending volume has dropped to less than half what it was before the recession set in at the end of 2007.

No comments:

Post a Comment