Great Lakes Wire

For enthusiastic entrepreneurs across America, the allure of running a small business remains strong. However, securing sufficient capital is one of the toughest early obstacles. Inadequate capitalization leads directly to high rates of company failures. Capital matters, but not all funding sources are created equal.

Startling statistics reveal capital constraints as a leading cause of small business failure. According to a U.S. Bank study, nearly 50 percent of small company failures are due to cash flow problems or lack of capital. Federal Reserve research indicates that only one percent of smaller firms report no difficulties in obtaining financing.

A JPMorgan Chase study found that small businesses were reaching only 50 percent of their revenue goals due to capital shortages. Securing financing early allows for strategic growth investments down the road.

When payroll is looming, orders are up, or equipment crashes unexpectedly, the pressure to get immediate financing relief intensifies. Unfortunately, impatience may lead company owners into precarious capital solutions such as online business loans and merchant cash advances. These options often come with high costs—average online loan interest charges exceed 40 percent, while some merchant cash advance rates surpass 250 percent annually after all fees are considered.

Given their expense structures, payments—often weekly rather than monthly—cannot adjust if business revenues decline. Companies may need to lay off employees or close entirely simply to cover relentless payment demands.

Rather than resigning your small business vision to undercapitalization, know that palatable financing options exist! Community banks and credit unions may provide flexibility as customer-focused local organizations. Government-supported Small Business Association (SBA) loans also offer accessibility and long-term value with capped fees and interest rates.

The unique structure of SBA loans unlocks various advantages for borrowers. Low down payments allow business owners to conserve more capital for growth initiatives. Long repayment terms promote greater financial flexibility and cash flow stability compared to alternatives like online loans. SBA interest rates tied to government benchmarks avoid market volatility.

Since the SBA guarantees large portions of approved loans, this reduced risk facilitates higher approval rates, especially for newer firms. For small business owners seeking not just capital injection but also optimized operational finances for the long haul, exploring SBA lending options with an approved lender makes strategic sense.

Friends and family constitute another option but ensure personal relationships do not turn sour over money matters. Ultimately, check all your capital-raising boxes before determining approaches. Seeking wise financial counsel from trusted advisors and mentors can help enormously as well.

With adequate funding, your business concept can become a thriving real-world enterprise. Learn about your options and strategically secure the necessary capital to fully ignite your small business future.

Resources such as Small Business Development Centers (michigansbdc.org) offer free counseling and consultants to assist in your search for capital and preparing your business for growth. The Michigan Certified Development Corporation (MCDC) has resources available to assist small businesses with various loan options at michigancdc.org.

By Mark A Williams

President of Michigan Certified Development Corporation; originally published in SBAM’s May/June 2024 issue of FOCUS magazine