Small businesses (SMBs) prefer not to seek funding to finance their innovative endeavors, according to new research from BMO Wealth Management, which suggests SMBs are missing out on opportunities to drive growth.
A survey of more than 1,021 small businesses in the U.S. published in BMO Wealth Management’s “Creating Wealth through Business Improvements” report on Monday (May 7) found that 60 percent of small businesses have never sought funding to support investment in innovation. More than a third said they chose not to seek financing for this purpose because they did not want to take on more debt.
This is despite the finding that two-thirds of SMBs agreed access to funding was the No. 1 necessity for an entrepreneur’s innovative initiatives.
According to the data, more than a fifth of business owners surveyed noted that they feared they would be rejected for a loan, and nearly the same amount said the process to access financing was too complicated.
BMO Wealth Management found other evidence that small businesses were holding back on innovative initiatives, with only 4 percent of survey respondents noting they had ever applied for a government grant. Awareness of these government programs was strong, but 44 percent of small business owners said that while they knew about government grant opportunities, they were unsure of where to apply. More than a third were unaware entirely that options for government grants were available.
According to the report, small businesses also lacked awareness of other funding sources to promote innovation: Most SMBs admitted they were not aware of accelerator programs or incubators, and only 3 percent had used these systems.
“Having access to information about funding options and support networks is essential to the continued success of a small business, particularly in its early stages,” said BMO Wealth Management’s U.S. National Head of Wealth Planning Tania Slade in a statement. “Business owners who take advantage of the numerous resources at their disposal have an immediate advantage and a far greater chance of seeing their innovation initiatives realized.”
In its analysis, BMO Wealth Management highlighted the role local chambers of commerce could play in supporting small business innovation, while local banks could similarly aid businesses in accessing financing. The survey also found that nearly two-thirds of SMBs agreed access to networking was a top necessity for innovation, as were partnerships with staff, suppliers and customers and access to mentoring programs.
“This suggests that business owners know how valuable funding and networking opportunities can be and are, in fact, interested in taking advantage of them,” BMO said in its announcement. “In short, they lack information — not motivation.”
Other factors besides a lack of information regarding funding and support opportunities may be behind small businesses’ struggle to innovate.
According to a report published in January by the U.S. Chamber of Commerce, “Examining the Impact of Technology on Small Businesses,” while the majority of small businesses surveyed were using digital platforms and other tools for sales and customer service, the basic requirement of internet access remained a barrier to innovation, with more than half of SMBs reporting that the cost of internet services was a challenge. More than half also told the Chamber that a lack of familiarity with various digital tools was another hurdle.
BMO has introduced several new services for small business customers, including a series of small business credit card products earlier this year with benefits programs targeted at small business spend categories like office supplies and fuel.
In 2016, BMO collaborated with Mastercard to incorporate biometric authentication technology for small businesses using credit cards to make purchases. Through that partnership, Bank of Montreal introduced a program that allowed employees and managers to authenticate online purchases using biometrics.