Financing for Small Business in a Sluggish Economy versus Conflicting Impulses of the Entrepreneur

ABSTRACTThe start of what is now termed the Great Recession began in December 2007 and statistically ended in June 2009, yet small businesses continue to struggle financially in 2012. Entrepreneurial activities for the most part are dependent upon the availability of financing. Access to capital remains a serious problem for entrepreneurs in this sluggish economy. Even when credit is available to qualified small businesses many avoid pursuing financing. This could be contrary to the wellbeing of the enterprise. In this regard common sense can take a backseat to the entrepreneur's stress and strain psyche.The purpose of this research paper is to provide information to practicing entrepreneurs with regard to the impact economic contractions can have on businesses and how they cope and survive. Do small businesses by and large have access to capital? If capital is available for small business lending are entrepreneurs taking advantage of the opportunity to borrow? What steps have been taken by federal and state governments to make it conducive for small business to borrow? Does increasing the availability of financing for small businesses create a sufficient inducement for small businesses to borrow to grow their business during uncertain economic times? Is bootstrapping an option?INTRODUCTIONSmall businesses continue to face challenging times as the nation's economy struggles to improve. Even so optimism among small business owners is on the rise. More than half (56%, up from 48% last fall) have a positive outlook on business prospects over the next six months. In spite of the promising outlook, these signs of recovery do not translate into immediate plans for growth. The top priority of small business owners at this time is maintaining their current business and sources of revenue (31%) followed closely by growing their business (29%, down from 37% last spring) (The American Express OPEN® Small Business Monitor, 2012). The flat economy, reduced business equity values and the resulting impact to credit and collateral has made capital formation for small businesses through bank financing difficult to obtain. During this time of economic uncertainty many small businesses that would meet bank lending criteria and could use the additional capital chose not add additional debt to their balance sheet. Those entrepreneurs believe they have few options for their business and are just trying to maintain the status quo.RESEARCHIn order to determine if access to capital was the predominant issue for small businesses during this current weak economy, Middle Tennessee State University's Tennessee Small Business Development Center (TSBDC) and Center for Organizational and Human Resource Effectiveness (COHRE) conducted a phone survey of small business in the state of Tennessee. The survey was developed to investigate which Tennessee small businesses are obtaining business financing, what differences exist between Tennessee small businesses that receive financing and are denied financing, and which banks are lending to small businesses in Tennessee.METHODOLOGYTo conduct the survey, COHRE obtained a list of business contacts from Info USA. The contact list was restricted to small businesses operating in the state of Tennessee, which TSBDC defined as businesses with less than 500 employees that earned annual revenue of less than $10 million. The TSBDC and COHRE developed a 40-question survey, which inquired about a business's financing over the previous twelve months. The survey was developed using queries posed by TSBDC and questions from the U.S. Small Business Administration's (SBA) 2003 Survey of Small Business Finance. The survey was piloted on a select few small business owners known to COHRE employees.Over the course of the survey development and administration, five phone survey administrators were hired and received identical training on survey administration, small businesses and the history of TSBDC. …