Last May, the Center's REAP Hispanic Business Specialist Imelda Catalan joined me at the Association for Enterprise Opportunity (AEO) Conference in New Orleans. AEO is the nation’s leading voice for micro enterprise development, serving the needs of micro entrepreneurs who lack access to traditional sources of business education or capital. Several important items caught our attention. We learned that 8,000 micro businesses get declined by financial institutions daily in the United States.
Business ownership is a major economic engine – the second largest source of household wealth in this country. It’s also an important strategy through which low- and moderate-income people can achieve financial success.
There are about 26 million micro business owners (those with 5 or fewer employees) in the US. Yet almost 13 million have household incomes below the national median of just over $50,000. A 2013 study by the Corporation for Enterprise Development in Washington DC found that:
- 53% of small businesses who have been in business less than a year had difficulty accessing credit. Reasons included no credit history or a bad credit history. In comparison, only 19% of small business with more than 10 years experience had that difficulty.
- 61% of lower-income business owners experienced trouble getting financing, also due to no or a bad credit history. They faced higher interest rates than individuals who made more than $150,000.
- Ethnicity is also a barrier for African American and Hispanic business owners since they are more likely to experience difficulty accessing credit. Respectively, 32% of African American business owners reported difficulty, 22% of Hispanic business owners, and 9% of white business owners.
Cash flow problems are key drivers of financial insecurity for micro business owners:
- A business’ operating cycle – the timing of payments and receipts – can play a significant role in either causing or resolving cash flow problems. Cash flow difficulties can also be linked to inadequate tracking of income and expenses.
- 23% of respondents identified cash flow pressure at tax time.
- Micro business owners’ cash flow problems can also drive financial vulnerability at the household level. Data showed that 66% skipped salary payment, 72% delayed salary payment, and 60% reduced salary.
As a program that supports micro enterprise in Nebraska, this data motivates us to continue serving individuals who lack financial support from lending institutions. You can find more information about our REAP small business services here.
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