An Economic Uncertainty
In an uncertain economic climate, small businesses are feeling the pinch, as evidenced by banks and their refusals to loan to small businesses who are desiring to either start up or expand. The picture is not a pretty one for those who are attempting to raise what is known as “gap funding” of less than $500,000 in the current economy. While some commercial real estate transactions are receiving Small Business Association loans, those looking for working capital are coming up short.
Crowdfunding is the newest approach adopted by many small businesses, which is similar in approach to Kickstarter, but where the latter looks to fund specific projects, Crowdfunding looks to help companies and other entities raise the necessary funds required for expansion.
Crowdfunding companies act as a funding matchmaker, pairing up companies seeking between $100,000 and $500,000 with investors who may lend them as little as $100 in return for a 5% dividend. Investors are urged to put less money into more companies, as this increases their chances for a successful return. With a 50% failure rate, putting all eggs in one basket is never a good idea.
Wells Fargo, the country’s largest lender of SBA loans, just reported that their bank topped the $1 billion total for the second straight year, which is the first time that has happened for them. The average loan size was around $400,000.
A new poll however, shows that small businesses are not particularly encouraged about the economy as the fiscal cliff crisis looms ever closer, coupled with stock market uncertainty in the wake of President Barack Obama’s re-election.
What The Future Holds
“The striking change has occurred in the future expectations index, where we’ve seen the biggest decline in years,” admitted Wells Fargo Head of Small Business Lending Marc Bernstein. “That’s primarily related to people’s anxiety about the whole fiscal cliff issue and the uncertainty around Washington right now.”
The hiring expectations of small business are another factor, with about 20 percent saying they expect to decrease the number of employees at their companies in the coming year, the largest percentage seen in more than a decade.
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Bernstein goes on to say that if the debt-deal talks in Washington remain unresolved and fiscal fears continue into the New Year, then Wells Fargo could start to see a reduction in the number of small business loans.“If the decline in revenues occurs that people worried about in here, I would expect to see some poor performance.”
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