An overwhelming majority of business owners say they have plans to expand their companies, but relatively few have the capital to do it, according to a new study.
Nationwide, just 40% of privately held businesses said they have the resources to grow, said John Paglia, who surveyed 559 businesses and 1,430 lenders and investors for the Pepperdine University Private Markets Capital Project.
The findings come at a time when there is national concern about small business’ access to loans.
The results corroborate what business owners have been saying for months, Paglia said — that they can’t get loans, and as a result they can’t expand or hire new people.
“It’s inhibiting growth opportunities,” said Paglia, a finance professor at the university’s Graziadio School of Business and Management.
The data also show that, frustrated as business owners are, most are significantly more optimistic than conditions warrant, he said.
That could lead owners to take too much risk, he said. It could also mean that small business, believed by many to be the engine of economic recovery, might be in worse shape than generally believed.
His survey is among the few studies that attempt to fully grasp the complicated problem, because he interviewed alternative lenders, venture capitalists and private equity firms along with banks. Most of the data previously available involved only banks.
In the survey, lenders and investors said they were rejecting 90% of loans and investments that would be secured by the real estate that a company owns. They said they turn down 73% of requests for loans or investments that would be based on the cash flow of the business.
Just over half of the business owners surveyed said they had to rely on friends and family for money. About a third said they had obtained bank loans, and about 10% had gone to alternative lenders, including those that provide loans against a company’s assets.
Paglia’s survey was of privately held businesses. About three-quarters of them were small businesses, he said.