Are banks stopping entrepreneurs from hiring?

Credit cards keep many entrepreneurs afloat
courtesy flickr user paalia
courtesy flickr user paalia

We need money! That's the pretty clear message from entrepreneurs to bankers and other potential sources of financing, according to the most recent installment of Pepperdine University's private capital markets project.

The survey queried more than 10,000 small businesses, of which 62% have revenues of less than $1 million. About 91% of small business owners said they have new business strategies they'd like to implement, but only 49% say they have the financial resources to do so.

These companies have less access to capital than one might expect: Fully 51% use no external financing at all. Those who do have external financing are most likely to turn to credit cards: 23% of companies with less than $1 million in sales rely on credit cards to keep their businesses afloat.

Banks standing in the way of new jobs

Entrepreneurs are well aware that small businesses are supposed to be the country's great engines of job creation. But they don't believe they have the access to capital needed to create jobs. When these entrepreneurs were asked what policies were most likely to lead to job creation, "Increased access to capital" took first place, with 34% of entrepreneurs naming this as the best option. "Tax incentives" came in second place, with 24% of entrepreneurs choosing it. "Regulatory reform" came in third, with 19% of the vote.

About 35% of the businesses surveyed actively tried to raise money during the past year. The survey suggests that those who are just about to begin the process of raising capital shouldn't be overly optimistic: Only half of the 2,595 businesses in the survey that tried to get a bank loan in the past twelve months were successful. On average, those who did manage to get loans worked with two banks and spent a total of seven full days trying to get financing.

Nearly half of entrepreneurs, or 47.2%, said access to bank loans has become worse over the past six months. Only 10.3% said that getting bank loans had become easier.

Hiring in the face of economic uncertainty

Some 44% of small businesses plan to hire new workers. The most in-demand skills are sales and marketing (47.8%) followed by skilled labor (41.6%) and service/customer service (38.8%). Those who are looking for skilled labor don't particularly think they'll be able to find it--some 82% of business owners looking for skilled labor expect to have to train new employees themselves.

This willingness to hire is perhaps a bit surprising, given that business owners' overall economic outlook has plummeted in the past year. In fall of this year, only 19% of respondents said the economy had improved in the past six months. A year ago, 42% of companies said the economy had improved within the past six months.

There's not a ton of optimism out there, either. Just 29% of business owners expect the economy to get better in the next six months, compared to 25% who think things will get worse.

Should the government try to help improve entrepreneurs' access to capital? How?

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    Kimberly Weisul is the co-founder of One Thing New, the free email newsletter for smart, busy women. She was previously Senior Editor at BusinessWeek, responsible for all coverage of entrepreneurship and for launching BusinessWeek SmallBiz, a bimonthly magazine. She is also a freelance writer, editor and editorial consultant.