Credit, Money Strategy: What About SBA?By Alison Diana | Posted 2011-09-07 Email Print
Small businesses including IT solution providers have found it tougher to get the money and credit they need to operate their businesses, especially if they've moved entirely to services. Here's a look at the state of financing for VARs and MSPs.
Although it provides start-ups with some resources, the Small Business Association had financial requirements that mirrored those of the banking community, said Serac Technologies’ Kurtowicz.
"We did look at, not with a huge amount of scrutiny, an SBA program. The requirements were not dissimilar. There were a lot of controls on it as well. It wasn’t as though there was any free money to be had," he said.
Key to Survival
Access to credit is critical for small businesses’ success, according to financial experts. Without the ability to secure credit, even the best-planned, most well-staffed start-up is more likely to fail, according to Traci Mach and John Wolken of the Federal Reserve Board. Limited access to funds curtails companies’ growth or expansion plans, prevents them from investing in research and development or new employees, and may endanger their ability to meet financial obligations such as payroll, they said.
"We find that credit-constrained firms were significantly more likely to go out of business than non-constrained firms. Moreover, credit constraint and credit access variables appear to be among the most important factors predicting which small U.S. firms went out of business during the 2004-2008 period even though an extensive set of firm, owner, and market characteristics were also included as explanatory factors," they wrote in an August 2011 report.
After the economy soured, banks were less willing to lend to unproven, new businesses—especially those involved in industries they did not fully understand. As a result, solution provider executives typically relied on savings, second mortgages, personal loans, and personal savings to fund their corporate dreams. Kurtowicz, for example, used his severance pay, as well as credit cards, for the down payment for Serac, he said.
"I suspect it would have been much easier to borrow money (a few years ago). It’s entirely possible we would have had much easier access to credit," said Kurtowicz.