Small businesses cautious about borrowing money from banks

Many people throughout the Chicago area have ideas for start-up businesses. Successful entrepreneurs understand that one of the first matters that needs to be addressed when someone decides to make a dream a reality is financing. Financing plays an important role not only when a company is initially launched, but often once the business is off and running, as well.

Perhaps not surprisingly, one of the sources most often used to secure financing is banks. Recent statistics released by a research firm, called PayNet, indicate that although the lending to small businesses did rise in July 2012, it was not by much. This small rise of 3 percent could indicate that many businesses are not comfortable with the state of the economy.

Some owners of small businesses have indicated that the current economy has prevented them from doing the following:

  • Borrowing
  • Hiring
  • Expanding

The decision to not seek additional financing from banks may not just be based on fears regarding the state of the economy. The same study found that some businesses appear to have problems making payments on amounts already owed. In July 2012 the number of loans that were 30 days or more past due rose to 1.2 percent. This increase of 0.04 percent was the first increase in the last two and a half years.

This is not to say that things are not better than they have been in the past. Compared to a year earlier, the Thomson Reuters/PayNet Small Business Lending Index increased by 15 percent. The 3 percent increase in July of this year was also the first rise seen in several months.

What do you think about this? Is a bank loan the best way for a small business to obtain the financing necessary to achieve its goals?

Source: The Associated Press, "Small companies borrow more but are still cautious," Sept. 4, 2012

  • We handle small business matters including those pertaining to financing. For more information on the topic, please visit our Chicago small business page.

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