In today's hostile economic environment, access to capital is the
primary differentiating factor between those businesses which have been
able to expand and gain market share versus those that have experienced
enormous drops in revenue. The reason many small businesses have seen
their sales and cash flow drop dramatically, many to the point of
closing their doors, while many large U.S. corporations have managed to
increase sales, open new retail operations, and grow earnings per share
is that a small business almost always relies exclusively on traditional
commercial bank financing, such as SBA loans and unsecured lines of
credit, while large publicly traded corporations have access to the
public markets, such as the stock market or bond market, for access to
capital.
Prior to the onset of the financial crises of 2008 and
the ensuing Great Recession, many of the largest U.S. commercial banks
were engaging in an easy money policy and openly lending to small
businesses, whose owners had good credit scores and some industry
experience. Many of these business loans consisted of unsecured
commercial lines of credit and installment loans that required no
collateral. These loans were almost always exclusively backed by a
personal guaranty from the business owner. This is why good personal
credit was all that was required to virtually guarantee a business loan
approval.
During this period, thousands of small business owners
used these business loans and lines of credit to access the capital they
needed to fund working capital needs that included payroll expenses,
equipment purchases, maintenance, repairs, marketing, tax obligations,
and expansion opportunities. Easy access to these capital resources
allowed many small businesses to flourish and to manage cash flow needs
as they arose. Yet, many business owners grew overly optimistic and many
made aggressive growth forecasts and took on increasingly risky bets.
