The world may be full of uncertainty, but America’s small business owners are feeling pretty confident about their companies’ futures. In a study conducted by the U.S. Chamber of Commerce Foundation, four in 10 say their profits are higher than last year, and 63 percent believe their profits will increase even more in the coming year.

So confident are small business owners and executives that 40 percent plan to increase employee head count this year, 40 percent expect to make capital investments and 37 percent 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 percent 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 mid-sized businesses. Forty-four percent of those with 51-100 employees say their access to capital improved in the past year, compared to 31 percent of those with 11-50 employees and just 15 percent of those with 10 or fewer employees.

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

The more employees a business has, the more likely it is to use 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:

  • 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, three percent have used a nonbank market-based lender at some point.
  • A whopping 88 percent of survey respondents who have taken out loans say their experience with the lender was somewhat or very positive.
  • 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.
  • 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 percent use community banks and 18 percent use regional banks. Just 14 percent use a multinational bank.

Your SCORE mentor can not only recommend a bank in the area that’s suited for your needs, but also help you find the right financing source and even prepare your applications. 

About the Author(s)

 Rieva  Lesonsky

Rieva Lesonsky is president and CEO of GrowBiz Media, a custom content and media company focusing on small business and entrepreneurship, and the blog

CEO, GrowBiz Media
Do You Rely on Debt to Grow Your Business?