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It’s often said that small business fuels the American economy. Even politicians say so, despite it being true. Looking a bit deeper, we see that if small business fuels the economy, it’s small business loans that fuel these businesses.

Demand for and access to capital is critical for small business success. Yet according to Pepperdine University’s “Private Capital Access Index/ Fourth Quarter 2015” report, demand for capital outstripped its accessibility for companies with less than $5 million in annual revenue. Of these same companies, 65% said it was difficult to raise equity financing, and 64% said it was difficult to find debt financing.

Small businesses rely on access to small business loans and other funding options to manage their cash flows, expand operations, and handle the inevitable unexpected just to stay afloat. Alternative funding options like United Capital Source, step up to meet that demand. Since its founding in 2011, United Capital Source has provided small businesses with loans totaling half a billion dollars.


Basic economics holds that companies and consumers are in a symbiotic relationship. Having only supply or demand doesn’t build an economy.

Small businesses are in the position of fulfilling both sides of this fundamental economic equation. Look at the demand side first – small businesses enable consumers. People without jobs don’t go out to eat. They put off fixing their cars and remodeling their homes.

Fortunately, small businesses provide critical employment opportunities. The Small Business Administration (SBA) says that 65% of all new jobs are created by small business. The Bureau of Labor Statistics (BLS) finds that small businesses account for half the private sector jobs overall.

Even better, wages at small businesses are going up, according to a recent survey by the National Federation of Independent Business (NFIB).

Now we’ll turn to supply: Small businesses generate roughly half the nation’s nonfarm, private gross domestic product (GDP).Their popularity may be a result of Americans’ cultural affinity for entrepreneurs. National events like “Small Business Saturday” and the movement to “buy local” represent just two of the most popular ways that Americans show their commitment in supporting small business.

And why not? According to the employment numbers, half of Americans work at a small business.

In fact, a Gallup analysis of the U.S. economy determined that while the United States has over 26 million businesses, the lion’s share of the economy is the result of just 6 million of them. These aren’t only the big boy companies. It found that over half of these 6 million high productivity businesses (3.8 million to be exact), had four or fewer employees. Another million fall in the 5-9 employee category.


Meeting the needs of both sides of the economic equation can be a precarious balance. Small business recovery since the Great Recession hasn’t come from a startling boom, but a steady slog of hard work.

Of all the reasons why a small business may fail, poor financial management ranks as one of the top. There are a number of ways a small business mishandles its finances.

Many manage their cash flow badly. The State of Small Business Report found that 36% of small businesses identified handling cash flow as key challenge. Also ranking up there was the need to improve profitability. Both needs require liquidity and financial flexibility. Yet small businesses often lack these kinds of financial skills. People open their small business because of their expertise as electricians or pediatricians. Not because they’re financial experts.

As a result, another common financial management mistake is over-investing in infrastructure or inventory before the business has a stable revenue stream. Now, this isn’t unrelated to bad cash flow management, but the impetus is different.

It’s natural to be optimistic when starting a business. New business owners often overestimate how quickly they’ll be able to build a stable client base. They’ll buy too much inventory, get too complicated with menus, rent or build out too large a space, or otherwise create large operating budgets that demand a lot of working capital.

There are many ways small business owners can eat up their start-up cash before they’re able to replace it with revenue. They don’t often have realistic expectations on when their small business will break even. So, they misspend the cash they have.

Even the trend of increased small business salaries is putting financial pressure on the small businesses, since prices aren’t getting raised too. You know the stress of meeting payroll; wanting to take good care of your employees and customers at the same time.

The end result of any of these financial management mistakes is that small businesses often need fast access to credit or cash in order to keep the business afloat.


The landscape of capital sources for small businesses is expanding. Personal savings, family and friends are still mainstays. Natalie Burg reports in The Top 5 Sources for Small Business Loans that “36% of the small business owners surveyed [in “The Hartford’s 2014 Small Business Success Study”] by using personal sources of funding, such as personal savings, retirement savings or capital from their family and friends, over traditional sources of funding such as bank loans, bank credit lines or Small Business Administration (SBA) loans.” [Tweet this quote]

However, family finances only take a small business so far. Small businesses need alternate sources of funding. Banks have traditionally taken this role, but they’re no longer offering small business loans at the rates and in the forms they did prior to the Great Recession.

The Wall Street Journal analyzed banks’ federal regulatory filings and found that the ten largest banks only loaned small businesses $44.7 billion in 2014, down significantly from the $72.5 billion they loaned small businesses back in 2006. With further investigation, WSJ found that banks were transferring small businesses from loans to credit cards, since credit cards cost the banks less to manage.

Instead, banks are keeping their loan dollars for big business. A report from the Harvard Business School, The State of Small Business Lending, found that the amount of small business loans carried on banks balance sheets dropped by 20% since the Great Recession, while the amount for big business rose over 4%.

Banks are making their choice clear. While the absolute amount of their small business loans goes down, the criteria and conditions of the small business loans they do write get stricter.

Their choice is a main driver why United Source Capital (UCS) has stepped in to fill this gap. Small businesses still need cash to operate and grow. The market has responded with a variety of creative ways they can access cash and credit. Many of these options, like merchant cash advances or factoring, don’t risk the small business’s cash flow.

Alternative lenders like UCS also provide lending options specifically designed for people or businesses with poor credit or no collateral. These options expand the capital access opportunities for all small businesses, which in turn reduces the cost to small businesses to find a loan.

The Harvard study reported on research done by the Federal Reserve, which found that the search costs for small businesses to find a loan were increasing. It found that small businesses invest almost 25 hours on bank loan paperwork, as they approach multiple banks during their process. This research also found that the applicants who are successful, still have to wait weeks or even months before actually receiving the cash. These are all direct and indirect costs that are hard for small businesses to absorb.

In contrast, UCS and other alternate lenders operate online, speeding up the entire process. The entire process. From application, to receiving cash, to simplifying repayment – everything is done online, minimizing these search costs.


Small businesses are concerned about the economy and regulatory costs.

Yet, small businesses are optimistic.

In a survey conducted by Allstate insurance, 64% of the small business owners surveyed said they believe their businesses will do well next year.

Technology and companies like United Capital Source give small businesses reason for their optimism. Both give small businesses flexibility and access to an unprecedented range of tools they can use to manage and expand their businesses.

In fact, access to capital is a critical piece in the daisy chain of a strengthening economy. When you connect all the dots, companies like United Capital Source provide the cash fuel to the small business engine that fuels the US economy.

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