TreyMarkel

Small business owners rely heavily on access to capital to operate and grow their business. When that access to capital is threatened, small business owners cannot do what they need to do to successfully run their business. At the same time, other businesses and government agencies also lose out when small businesses do not have access to business loans. If a small business wins a government contract or an RFP from a private sector business, and that small business owner cannot receive the working capital they need to start the project, the small business owner is out of luck and out of a contract.

If you truly sit down and think about how many people, and businesses, and employees, and markets, are affected by this credit crunch, it’s almost never ending. Lets take one scenario where lack of access to capital can destroy a business and everything around it.

There was a small Internet lead generation company that started in 1997. They were in good hands, well capitalized and had a bright future. The company grew very well through the next 10 years and had close to $300,000 a month in revenue. They were bringing on new clients left and right and they were being mentioned in all the hot articles and magazines. The business had also not needed business financing at all during the entire growth segment.

As we all know, in 2008 the economy hit the floor and it hit the floor hard. Banks and lenders went out of business, small business owners threw in the towel, and employees were getting laid off left and right. The company that I am telling you about lost 70% of its revenue within 9 months. It was awful. The company desperately needed working capital to keep all the employees and to keep the business off the ground. Unfortunately, the business was unable to be approved for business financing as the capital markets tightened up over night. Here are the results of this business not being able to access business financing.

The first thing to happen is they had to let go of their major expenses. In this particular type of business there were really only two major costs. These costs were employees and marketing. All other costs were costs that any IT Internet based company had to have. The owner of this business gave his employees an option. They can either take massive pay cuts, or they can not have a job. So we have now affected employee moral, motivation, support, and the general perception that the business was going to grow and be sold. Later that week the owner of the business started getting phone calls from the spouses of the employees. They were complaining that there wife or husband had been there for years and this is unfair. So cutting wages critically disturbed the families of employees, the moral in the office, and the motivation to even work. These families couldn’t go on vacation anymore, they couldn’t pay for gas to come into work, and they just had no interest in doing anything for the business.

The second thing to happen is the company had to cut quite a bit of its marketing costs. So who does this affect? The business had to call all of its marketing vendors and either negotiate rates, or completely cancel the service. What is the water fall affect for negotiating or canceling marketing contracts? Well, you now have marketing vendors worrying about revenue. Because we probably weren’t the only customer that canceled with this marketing vendor, they are now wondering how they are going to keep their employees and pay their bills. What about their kids and putting food on the table. You can see my point by now.

Because this company canceled certain marketing contracts, the company now had less revenue with already taking a huge hit in revenue. Customers were leaving the business left and right because of the lack of deal flow that was coming through the company. So now the business has affected all its buying customers and their revenue. Take the same water fall affect from above and implement it with the buying customers as far as employees and families etc.  Keep in mind that each one for these businesses also has to pay taxes.  How are the taxes paid with no revenue?

The fourth item to go was technology that was great for the company during great times but not so great just because they were paying for it. How does this affect that business and any businesses that business has to pay to stay in business? Now the company couldn’t have virtual meetings, they couldn’t offer real-time support to their customers and they couldn’t even pick up the land line telephone without it dropping a call.  It’s almost too much to think about how many different ways a small business can affect the entire economy just because they cant get a business loan.

Lastly, the company had lost one of it’s biggest government contracts because it couldn’t access the working capital it needed to start the project.  What else could possibly go wrong?

The small business community is the backbone of the United States economy. It makes up the majority of new hires, the majority of vendor customers, the majority of total transactions, the majority of business loans given, etc. When precious support in the form of business loans, cannot be given to the backbone of the nations economy, the economy falls. Business owners can’t afford to keep or hire employees, keep contracts with multiple vendors which are also small businesses, create new markets, start new projects, etc.

Business loans are the life blood of our small business community. What are you doing banks?  Look at the big picture and stop looking at yourself.