Small Business Owners Reluctant to Take on Debt Despite Access to Credit
Despite reports that small business loans are becoming easier to obtain, a majority of small business owners don’t ever apply for them, according to a survey from the financial information company Sageworks.
When asked if they had ever applied for a loan for their business (including personal loans), a little less than 77 percent of small business owners said they had not. The businesses surveyed were less than 10 years old.
The survey also asked small business owners why they chose other means of funding over business loans. Sixty-two percent of the respondents said it was because they did not want to take on debt, while 24 percent said they did not believe they would be approved for a loan. Twelve percent thought the cost of credit was too high, while 9 percent said the loan process was too time-consuming.
How are business owners financing their companies if they aren’t applying for loans? When asked how they’re starting their business operations without taking on debt, 59 percent of respondents said they used personal savings to start their business. Nearly 30 percent indicated they didn’t need any funding, while 10.5 percent of the respondents said they received funding from friends or family. Just over 19 percent of respondents did rely on a loan or line of credit.
Sageworks chairman Brian Hamilton sees this reluctance to take on debt as a good sign in many ways. “Taking on too much debt can be harmful to a business,” he said in a statement. “Management starts worrying about how to pay back the loans, rather than how to really scale the business.”
The fact that businesses currently have greater access to capital is good news, Hamilton explained, but it’s even better news that they’re being cautious about accepting that capital and debt.