Babson Park, MA 02157
This study explores issues in entrepreneurial financing, both from the viewpoints of the finance seeker and the finance provider. Based on research in the New England area, we identify the issues important to borrowers as they relate to providers of debt capital, including such groups as factors, asset-based lenders, venture capitalists, angels, banks (regional, super regional and community), leasing firms, and governmental sources. We examine a number of critical issues, including such matters as:
We designed and mailed an extensive survey questionnaire to members of the Small Business Association of New England (SBANE). In response, we received 206 replies, representing a 20% percent response rate. We also conducted a series of random telephone interviews with SBANE members. The views of the debt providers were gained through in-depth interviews with individuals actively involved in providing small-business financing . To analyze the survey data, we used traditional statistical and survey analysis methodology.
Based on the responses to the survey, we have various interesting findings. For instance, about half of the respondents have given up a growth opportunity for their business because of a lack of financing. For the most part, the traditional perceptions held by bankers regarding the cost of financing do not match with our entrepreneur responses. Moreover, approximately 50 percent of the respondents have "shopped" their loan terms, with 80 percent receiving better terms for their efforts. Bankers confirm this finding, by suggesting that they use the loan rate as a marketing vehicle; they also rely on a portfolio of fees and service income to enhance their earnings.
Our findings suggest that the market for small-business lending (under $1 million) appears to be heading towards a dichotomy in which community and small regional banks focus on customized services and personalized relationship albeit at a higher interest rate, monitoring cost, and longer turnaround time. In contrast, super-regional and national banks are sacrificing personalized service to offer the borrower lower costs and faster funding. Also, full-service banks are using the lending rate as a loss leader for middle-market companies ($1 to $10 million borrowing range) in attracting new business and service fee related income. This trend appears to be trickling down to the smaller markets. Finally, borrowers are taking advantage of the improving technology to more efficiently and effectively identify the optimal lender for their specific needs. And, lenders are using technology to credit score loans quickly and disseminate information and capital flows more readily to the marketplace.