SOURCE: AdvanceMe, Inc.

November 16, 2006 08:30 ET

New Data Reveals Increased Needs for Small Biz Financing Options

Majority of Small Business Owners Unsure Where to Turn for Fast Access to Capital

ATLANTA, GA -- (MARKET WIRE) -- November 16, 2006 -- According to the results of a recent survey of small business owners commissioned by New York-based Capital Access Network (CAN), American entrepreneurs are facing a near crisis when it comes to obtaining financing needed to maintain and/or expand their businesses. In recent years, American small businesses have been credited with jumpstarting the economic recovery, moving many unemployed workers into entrepreneurial endeavors. Today's survey data shows 79 percent of small businesses are undercapitalized and as many as 90 percent run the risk of filing bankruptcy or shutting down in the first five years. Those same small businesses that once drove economic growth are having little success in finding accessible working capital to stay competitive and grow.

Perceived and real barriers in approaching and securing traditional funding sources like banks or the Small Business Administration (SBA) have been complicated by the flood of hurricane-related disasters and rising interest rates. Respondents cited a variety of reasons for why it was difficult to obtain small business funding including rising interest rates, difficulties with excessive documentation, cumbersome applications and required collateral.

The research, highlighted in the first edition of a quarterly series titled "Capital Access Network Small Business Barometer" indicated that these businesses have a low awareness of newer funding options and might benefit from alternative funding options.

Survey Highlights

The survey was conducted nationally among small business operators who accept credit cards as a form of payment. It revealed compelling data about the state of small business finances:

--  80 percent of small businesses have a greater need for funding today
    than they did one year ago.
    
--  82 percent of small businesses believe it is more difficult to get
    financing today than one year ago.
    
--  The majority of respondents (56 percent) also indicated that they
    would consider starting a business in a new industry if they had access to
    more funding options, helping fuel the American economy.
    
Traditional Options, Barriers and Trends

In one year since Hurricane Katrina, the SBA approved nearly $10.5 billion in low-interest disaster loans to homeowners, renters and businesses whose properties were damaged by hurricanes Katrina, Rita and Wilma. But less than 25 percent of this money has been disbursed to hurricane victims to date.

Plus, nearly all extensions of capital to small businesses, whether in the form of credit cards or commercial loans, are tied to the prime rate. Since June 2004, the Federal Reserve has issued 17 consecutive quarter-percentage-point increases. For business owners, the impact of these rising rates can be severe, leading to unforeseen and unexpected costs.

The survey asked small business owners to identify the funding methods that they find appealing, and inquired about the sources of working capital they have applied to in the past. The survey results reinforced that while some forms of funding may be appealing on the surface, many are not always feasible based on the business' current situation. 90 percent of respondents found traditional bank loans to be appealing, yet only one in four actually sought a bank loan despite needing money. Similar results were found with SBA loans which initially appear very appealing to small businesses, yet only one in seven businesses actually sought an SBA loan.

Although venture capital is on the rise, hitting $5.3 billion in Q3 2005, it remains considerably lower than its $27 billion levels of 2000. More important, most small businesses do not qualify for venture capital. When asked about other considerations, small business owners were mixed.

--  More than 55 percent of small business owners do not believe loans
    from friends or family are appealing.
--  More than 45 percent of small business owners do not believe home
    equity lines or second mortgages are appealing.
    
The data found by the survey is consistent with findings released recently by the Federal Reserve which said that changes in regulations and a sluggish economy had prompted small businesses in 2003 to turn increasingly to non-banking financiers such as finance and leasing companies, brokerages, credit- and debit-card processors, venture capitalists, family, and individuals. The Federal Reserve said that from 1998 through 2004, small firms' use of non-bank financial companies for funding increased from 40 percent to 54 percent. This movement to non-traditional financial sources is the continuation of a 20-year trend. In 1987 only 25 percent of small firms used financing that was not provided by banks, thrifts, or other depository institutions.

Alternative Sources of Cash: Low Awareness

The survey found a strong disconnect between how businesses have previously considered seeking funding and their actual behavior. The survey also pinpointed a lack of awareness of Merchant Cash Advances, a funding method that has garnered some recent attention, as referenced in a May 8, 2006 Wall Street Journal article titled "Capital Ideas." Merchant Cash Advances enable a merchant to employ their future credit card sales, an asset traditionally unrecognized by financial institutions, to raise working capital. The survey responses indicated a low market awareness level for Merchant Cash Advances.

--  At least 73 percent of respondents were unaware that they can sell
    their future credit card sales in exchange for working capital.
--  Only 6 percent had ever sold future credit card sales in order to get
    working capital.
--  An overwhelming percentage, 92 percent, responded that they would find
    it appealing to have access to a financial product that could provide as
    much as $150K in working capital per revenue-generating location within 10-
    14 days.
    
Generally, Merchant Cash Advance providers purchase fixed amounts of future credit card sales at a discount. Collection of the purchased credit card sales occurs automatically through the merchant's credit card processor. The Merchant Cash Advance provider receives a fixed, predetermined percentage from each credit card sale. Since it is sent a set percentage and not a fixed amount, the provider only gets paid when the business does, helping manage cash flow throughout the year. No fixed payment schedule or application fees apply.

Capital Access Network Small Business Barometer

The CAN Small Business Barometer will be released quarterly and is commissioned by Capital Access Network with the purpose of capturing and reporting data that will continue to support the growth and viability of small businesses across America. According to Glenn Goldman, CEO of Capital Access Network, "The private capital markets are creating and expanding new financial service products to meet the needs of America's small business owners. However, as the Small Business Barometer shows, the country's merchants are just beginning to learn about other sources of funding available to them. Expanding the knowledge of these business owners regarding alternatives is of paramount importance."

About Capital Access Network, Inc.

Capital Access Network is based in Scarsdale, NY. For additional information regarding the survey, please contact Diane Naczi at 770-590-9822 X382 or visit www.CapitalAccessNetwork.com.

Contact Information

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    Heather Graham
    Trevelino/Keller Communications Group
    404-214-0722 x103
    Email Contact