Unlocking business capital for small businesses

Small businesses are the backbone of the economy, yet a 2024 Goldman Sachs survey reveals that 77% of them are worried about their inability to access capital. This concern is heightened by the current environment of rising interest rates, which 63% of small and medium-sized businesses (SMBs) say has impacted them. 

The importance of managing cash flow effectively cannot be overstated, as 82% of small businesses fail due to poor cash flow management. Furthermore, the funding landscape is uneven, with only 1.9% of venture capital funding going to female startups, despite data showing that they are more profitable than their male counterparts. Additionally, only 33% of black and Hispanic businesses receive a portion of the funding they request, compared to their white counterparts who tend to receive more.

It is crucial for businesses to consider their options carefully. One of the biggest problems for businesses today is the cost of credit, in addition to being able to access it. As businesses grow, they should explore options such as small business credit or debit cards, which offer more flexibility and allow businesses to establish credit. There are also products available that provide access to capital for businesses without relying on personal finances or credit. Whether it’s a small business credit or a debit card, it gives businesses more options and flexibility,  and allows them to keep things separate from their own personal credit and start to establish credit as well. And then they’ll have access to rewards and loyalty and all the great things that come along with some of those products. 

In the context of business financing, a flexible repayment model can be a game-changer, especially for businesses experiencing fluctuating sales. Unlike traditional bank loans that require fixed monthly payments, financial services that offer this model can help adjust the repayment amount based on the business's sales performance.

For instance, during slower months with lower sales, the repayment amount decreases, alleviating the financial burden on the business. This approach prevents the accrual of interest that could potentially harm the business's credit score, a common issue with standard loans when businesses struggle to meet their monthly payments.

Conversely, when the business experiences a surge in sales, the repayment amount increases, allowing for faster loan repayment. This dynamic repayment model has proven to be highly successful and well-received by businesses due to its simplicity and adaptability to their unique financial situations. It has resulted in high customer satisfaction, demonstrating its effectiveness as a financing solution.

The market is evolving with products that offer businesses access to capital without relying on personal finances or credit. Businesses should explore various options, including small business cards or loans. However, the rising interest rate environment makes access to credit more expensive, so businesses should consider not only the capital they're getting but also the interest and the cost of that capital.

Businesses should shop around to understand all their options. Products like small business debit and credit cards can serve as working capital tools, allowing businesses to manage their cash flow, pay suppliers quickly, and gain insights into their spending.

Companies like Visa, Square and Credit Karma are providing solutions and resources that better enable small business access to capital. Square has had success in offering credit by making business loans based on the information they have about the business on their platform. These loans do not require a personal guarantee and are not reported to a credit agency, providing a credit source that aligns with how businesses operate. 

Credit Karma allows businesses to shop for financial products with confidence, providing information on the products and which ones they are most likely to get approved for. This can help businesses avoid hurting their personal credit and experiencing the repercussions of applying for a product and not getting approved.

In addition to these solutions, there are also resources available to help businesses improve their credit scores, which can directly impact how much capital they can access and the cost of that capital. However, businesses should be mindful that just because they have access to capital doesn't mean they should always take it.

A survey revealed that 77% of small businesses anticipate making more revenue this year than the previous year, reflecting a positive and resilient outlook. As businesses plan for the future, they should consider adopting technologies like AI to streamline operations and save time. This would allow them to focus more on their core business activities such as product development, sales, and customer acquisition, rather than back-office tasks like accounting and payroll.

Moreover, businesses should strive to maintain strong, consistent processing data, a good history of loan repayments, and robust bank account data or credit. These positive aspects can help present a narrative of a growing business that is capable of repaying credit. While there may be easy and hard years, maintaining a positive trajectory is crucial for business success.