Why SMBs Bank On Personal Finances Over Bank Loans


When it comes to managing small business finances, a new study indicates small business owners in the U.S. are digging deep into their own pocketbooks instead of looking to banks to provide them with the necessary capital.

This new research from BlueVine, an online provider of working capital finance for SMBs, released a study that included the input of 692 SMB owners, which revealed that 83 percent of those have built their businesses on their personal finances. Just 15 percent of those surveyed turned to a bank or bank loan to finance their financial gaps. In comparison, 60 percent of respondents said they turned to personal finances for those gaps, of which 48 percent ran their businesses without pay as a result and 17 percent had to delay other major expenses, like payroll or rent.

Three-quarters (75 percent) of SMBs reported that they are primarily self-funded, with banks accounting for 16 percent and 6 percent coming from family or friends. Asked about what their biggest focus points would be, most SMB owners listed growing their current business line (46 percent), followed by managing expenses (20 percent). More than half of SMB owners manage their finances on their own (55 percent).

“Despite the amount of capital available today, it’s clear that cash flow challenges continue to be a significant growth and operational hurdle for the vast majority of business owners,” said Eyal Lifshitz, founder and CEO of BlueVine. “The findings of this survey indicate that small business owners in America are in need of accessible, external funding options and continue to be self-sustaining and reliant, largely out of necessity.”

Despite the financial and operational challenges these SMBs face, just one in three owners have applied for a personal loan to finance their business. And the results? Forty percent reported having a bad experience.

When it comes to meeting the cash flow gaps, SMBs face major challenges. The stats show that close to four in five owners have felt the impact of a cash flow gap. That’s caused them to turn to more drastic measures, as listed above (worked without pay, delayed payroll and/or cut employee and business hours). And in most cases, the cost of running a small business snuck up on the owners more than expected.

What the survey revealed is that 33 percent of SMB owners cited taxes as being a surprising expense that was not anticipated when opening a business; Twenty-eight percent cited technology costs as being the most surprising expense. Nearly 50 percent of the owners listed external factors, such as government regulation, as having the greatest impact on their business.

The survey also showed that 25 percent of these small business owners have failed at a business venture, with 78 percent starting another business despite that initial failure. The reasons listed as to why those businesses have failed: 45 percent cited internal issues, and 55 percent listed headwinds from outside issues. Other reasons listed: not enough funding (18 percent); marketing, sales or lack of customer demand (17 percent); economic downturn (14 percent); internal conflicts (10 percent); and declining industry (9 percent).


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.