Home-Based Business Financing Outlook

Uncle Sam defines a small business as a company with as many as 500 employees. Yet over 98% of the nation’s small businesses employ less than one-hundred people, almost 90% employ less than twenty. and about 50% of the total are home-based. The last time the census bureau reported the data, nearly 83 percent of all of the net new jobs in our economy came from businesses with fewer than 20 employees , including home-based businesses. Nevertheless, for these smaller small businesses finding money can be especially difficult, and even more so for someone trying to start a home-based business.

Lending standards have been tightening at many banks for more than a year–you know that we’re sure, and that’s confirmed by the recent Federal Reserve’s quarterly survey of senior loan officers. In the three months ending in July ‘08, for example, 65% of banks said they tightened credit. Lenders reported that they view any company tied to the housing industry as risky. Plus people who relied on home equity lines to fund their businesses have seen those sources dry up as home values fall.

But there’s hope. According to the SBA the only reason they’ve guaranteed fewer loans lately is because of reduced demand by small businesses, borrowers are on the whole less creditworthy, and some lenders have tightened their credit standards–not bank’s unwillingness to lend. The National Federation of Independent Businesses confirms that small business demand for loans is lower, but–get this–only 3 percent of owners cited the cost and availability of credit as their primary business problem, far from the record 37 percent reached in 1982. Additionally, 34 percent reported that they found the money they needed, and only 5 percent reported problems obtaining financing–the remainder did not want/need to borrow.

For those that have had problems paying existing SBA guaranteed loans, the Small Business Administration has urged its lenders to give struggling borrowers a break. The agency recently issued a statement “strongly encouraging” SBA lenders to allow borrowers facing financial difficulties to defer payments on their 7(a) and 504 loans for three months.

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