Tag: Small business financing

How Small Businesses Can Break Free From the ‘Efficiency Trap’ | Entrepreneur

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After decades of working with small businesses, I’ve witnessed a troubling pattern: the harder entrepreneurs try to maximize efficiency, the less efficient they become. This efficiency paradox plagues businesses of all sizes, but it’s devastating for small companies where every resource counts.

McKinsey research shows that small and medium businesses operate at 50% of the productivity of large firms — a gap that stems from misguided efficiency efforts. Understanding and resolving this paradox can transform how you operate.

The two types of efficiency

Here’s a concept from the Lean methodology that changed how I think about business operations. There are two approaches to efficiency: resource efficiency and flow efficiency.

Resource efficiency focuses on maximizing the utilization of your resources. You build a queue of work to ensure your resources are busy. It’s like having a writer with articles to write, ensuring they’re productive for all eight hours of their workday.

Flow efficiency optimizes for speed through your system. Instead of building queues, you focus on moving work through your process quickly. Using the writing example, you’d interview someone, have the writer create the article, review it and publish — no waiting, no queues.

The healthcare system provides a stark illustration of this. In Canada, we optimize for resource efficiency. Specialists are fully booked, CT machines run at maximum capacity and patients wait months for diagnoses. I’ve seen cancer treatment systems operate differently — where patients can see specialists, get scans and receive diagnoses in one day. Their CT machines sit idle sometimes, but patients get answers immediately.

Here’s the paradox: by trying to maximize resource utilization, we create inefficiencies that slow down our operation. You think you’re being efficient by keeping everyone busy, but your customers are waiting months for what could be done in days. The side effects can be devastating: lost customers, damaged relationships, missed opportunities and consequences that are incalculable.

Related: 6 Ways to Make Your Business More Efficient

The hidden cost of context switching

This efficiency paradox doesn’t just happen at the system level — it shows up in how we structure our work. When we try to maximize resource utilization, we create what I call “efficiency theater” — looking busy while being less productive.

Consider the hidden cost of context switching. According to research, context switching reduces productivity up to 40%. There’s a mental tax every time you switch between tasks. If you make 50 context switches in a day, you’ve paid that tax 50 times. But if you can organize your day to switch only five times, you’ve reduced that waste.

This connects directly to those two types of efficiency, revealing the paradox. Resource efficiency minimizes context switching — you batch similar work and stay in your zone. Flow efficiency increases context switching when one person handles multiple steps in the process.

Despite the context-switching penalty, flow efficiency delivers better results by eliminating other wastes: delays, queues and work sitting idle. The goal isn’t choosing between resource or flow efficiency; it’s identifying and eliminating whatever is hurting your business most. Sometimes that’s context switching. Sometimes it’s customer wait times. The art is knowing which matters more.

This connects to what Paul Graham wrote in his essay on maker versus manager schedules. When you’re in maker mode, you need long, uninterrupted blocks of time. In manager mode, you’re switching contexts constantly. Most small business owners try to do both simultaneously, creating massive inefficiency.

I’ve learned this the hard way. When I try to write code in the morning, handle customer calls at lunch, review financial reports in the afternoon and then jump back to coding, I accomplish far less than if I dedicated entire days to specific types of work.

Identifying waste in your systems

Understanding this paradox helps you spot waste in your systems. Ask yourself: Why is this taking so long? What unnecessary steps have we added?

I discovered a major inefficiency in our software development process around branching. We were using long-running branches, working on it for weeks, then trying to merge everything back together. The longer these branches ran, the more problems we encountered. We were trying to be efficient by letting developers work uninterrupted, but we were creating waste.

The solution was simple: shorter running branches with uncompleted features hidden by feature flags. Now, if a branch needs to run longer, we require daily rebasing. This policy change eliminated hours of integration headaches and reduced our bug count. It transformed our development from resource-efficient to flow-efficient.

Related: Don’t Waste Money on Unnecessary Spending — Here’s How.

Balancing improvement with stability

Some business owners resist change, citing “if it’s not broken, don’t fix it.” This mindset can leave you vulnerable to competition. The key is adopting a continuous improvement mentality — not because something is broken, but to stay ahead.

Think about computer processors. Intel doesn’t wait for its chips to fail before developing faster ones. They know competitors are innovating, so they must too. When Intel failed to keep pace with this philosophy — falling behind competitors like Apple’s M-series chips — we’re watching a once-dominant company struggle for relevance. The same applies to your business processes.

However, you need the right people. Some team members thrive on improvement and change, while others prefer stability. Both have their place, but in competitive industries, you need people comfortable with evolution.

The cost of partial work

Another source of waste is unfinished work. Starting something and not completing it before moving to the next shiny object creates partial work waste. Unless you’re experimenting or researching, unfinished work represents time invested with no return.

The efficiency paradox teaches us more isn’t always better. The most efficient path involves letting resources sit idle to maintain flow. Sometimes it means saying no to new initiatives to complete existing ones. It means being intentional about how you work.

Start by examining your operations. Where are you optimizing for busy-ness instead of throughput? Where has context switching become a hidden tax on your productivity? How can you batch similar work together to improve flow?

Efficiency isn’t about keeping everyone busy — it’s about delivering value quickly and consistently. Once you understand this paradox, you can build systems that serve your business and customers.

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Alykhan Jetha

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September 16, 2025
How Small Business Owners Can Level Up Their Negotiation Tactics With Venture Capitalists | Entrepreneur

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Opinions expressed by Entrepreneur contributors are their own.

When small business owners are looking to secure investment from venture capitalists (VCs), they have to understand the accurate valuation of their business before they enter into negotiations. Otherwise, they end up asking for too much, and investors won’t buy in, or they give away too much as a concession for getting financial backing. You don’t need to let either of those unfortunate scenarios happen to you.

Instead of guessing and hoping, you must be prepared to negotiate based on honest and accurate information. Even if your business is very small or you’re new to the business world, you don’t need to be intimidated when working with venture capitalists. Understanding your company’s strengths and knowing how to address its weaknesses can take you a long way toward success.

Choosing the right venture capital opportunities

One important negotiating tip is to make sure you’re choosing negotiations with the right people. In other words, be selective about your opportunities. You don’t want to send a mass email to many VCs, hoping someone will take interest. If you do that and get replies, it could be that they’re trying to take advantage and think that you’re desperate. Instead, target only a handful of venture capitalists who are a good fit for your needs and have helped companies like yours before.

Study your options for venture capital and the people who typically support businesses like yours. Look for VCs who work within your industry or who are focused on helping small businesses that are similar in size to what you have. When you find the right people, negotiating with them becomes much easier because you understand one another and have more common interests and goals. Then, you can both see the value of working with one another.

Related: 8 Key Factors VCs Consider When Evaluating Startup Opportunities

Options for venture capital you should consider

It’s essential to consider more than one option or offer if you can. It’s not just the VCs you work with that matters, but also what they give you. Getting additional money to grow your business is essential, but there are other aspects of business development. There are many different ways that a venture capitalist could bring further and ongoing value to your company.

If there are other areas where your business needs support, don’t be afraid to ask. Some VCs may have connections, offer mentorship or provide additional value beyond cash. Consider these options and if they can help your business succeed. If they’re better than an influx of money only, they might be suitable for your needs. Ideally, you can get cash and other perks, but that depends on the person you’re working with and what they’re willing to offer.

Focus on post-investment processes

Before making any deal for venture capital, make sure you’re clear on the decision-making processes that will occur post-investment and what level of control you’ll retain. In other words, you only want to agree to work with a VC that will buy your business out and take it over if that’s what you’re specifically looking for. Getting your questions answered in this area is extremely important.

You should negotiate this area carefully because too many small business owners get caught up in the idea of earning money to help their business, and they agree to conditions that only benefit them in the short run. Some need to read the contract carefully, or they aren’t willing to ask for more because they fear losing what’s offered. That is your business, so make sure you know what trade-offs you’re agreeing to.

Remember that value-add is part of the equation

While the financial backing venture capitalists can bring is highly important, there is a value-added beyond that capital. Working with the right venture capitalists brings you additional opportunities that could be even more significant than the money they’ll invest. When negotiating with a VC, ensure you know what matters to you and why your business is worth investing in. That can help you get a “yes” from the right investor.

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Avi Weisfogel

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December 21, 2023
Small business confidence is tanking again, especially when it comes to banks and Biden

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As President Biden begins to more forcefully build a reelection case citing Bidenomics, Wall Street forecasts and actual GDP data are supportive, as are recent improving sentiment scores from consumers and CEOs. But on Main Street, small business owners remain a difficult group for Biden to win over.

Small business confidence is back at an all-time low, according to the just-released CNBC|SurveyMonkey Small Business Survey for the third quarter. That’s nothing new for Biden, as small business confidence has hung around a low throughout his presidency. In fact, the latest decline in the confidence index to a score of 42 out of 100 matches the all-time low from exactly one year ago.

With a business owner demographic that skews conservative, the twin economic issues of inflation and rising interest rates have compounded the general concerns about a Democratic administration. But at a time when signs are pointing to progress in the fight against inflation and a potential though by no means certain end to Federal Reserve interest rate hikes, the Q3 data presents more specific — and potentially more troubling — concerns for the president.

Even with a resilient economy, with interest rates at a multi-decade high, the number of small business owners who say they can easily access the capital needed to operate their firms continues to decline, now at under half (48%) versus 53% last quarter. This should not come as a surprise, as higher interest rates make banks stricter when it comes to lending requirements, a dynamic that tends to disproportionately punish small businesses, and linger or even intensify the longer a higher rate environment persists. Even for businesses that can secure loans, double-digit percentage rates are a cash flow challenge.

Data released on Monday from small business trade group NFIB reported similar difficulty among business owners attempting to access capital, with over half (58%) who borrowed or tried to borrow reporting high interest rates as their biggest complaint, and 40% of owners saying interest rates were a significant issue in the ability to access capital.

Wall Street banks and Main Street lending

The latest monthly report from alternative lending firm Biz2Credit from earlier this month shows small business loan approval percentages at banks with over $10 billion in assets at 13.3% in July, an approval rate that has been falling steadily and, pre-pandemic, had been as high as 28.3% in February 2020.

Rohit Arora, CEO of Biz2Credit, noted in a release on his firm’s data that as regulators raise capital requirements at some large banks in the years ahead, steps being taken today to prepare include more hesitancy to lend to smaller companies, since these loans can often range from five to seven years in term length.

Beyond recent concerns about the stability of regional banks, rating agencies say that even the largest Wall Street banks are on downgrade watch, not a situation in which banks are likely to be more accommodating to the capital needs of small firms, and in fact, the CNBC|SurveyMonkey data recorded a sharp drop in financial system confidence among business owners who work with large banks.

When it comes to accessing capital, small firms that hold accounts with large banks recorded the largest drop quarter-over-quarter, a 10% decline, from 59% saying it was easy for them to access business capital down to just 49% now. That was a much larger decline than among business owners who bank with a regional bank (down 2% quarter over quarter) and those who work with a community bank (down 4%). The largest group of small businesses (41%) conduct their business with large banks.

SurveyMonkey’s analysis of the data pointed to a gap between business owners who express confidence and a lack of confidence in banks that has widened from just 1 percentage point in Q2 (49% confident, 50% not confident) to 9 points now (45% confident, 54% not confident) this quarter.

“These data are a good reminder that the general economy for small business owners can often be very different from the economy that consumers on one side or large corporations on the other are experiencing,” said Laura Wronski, research science manager at SurveyMonkey.

The CNBC|SurveyMonkey Small Business Survey was conducted among over 2,000 small business owners across the U.S. between August 7-August 14.

While concerns across the economy about the banking crisis have lessened since the last quarter, that is not reflected in the conditions that small businesses are facing.

“Banking concerns have become even more top-of-mind for small business owners now, with their confidence in the U.S. banking system weakening and their ability to access needed capital hampered,” Wronski said.

Biden’s business supporters are increasingly negative

The CNBC|SurveyMonkey quarterly confidence index includes a series of core sentiment indicators related to policy that contributed to the decline back to the all-time low, with more small business owners saying they expect immigration policy and tax policy to be a negative.

That’s notable, according to SurveyMonkey analysis of the results, with these index components that had the largest drag on the overall scores not those tied to hiring or economic conditions, but “two factors that fall squarely within the remit of the president and Congress.”

Business owner expectations for revenue and hiring were largely unchanged, and the percentage that describe economic conditions as “good” changed only slightly, from 40% to 38%. More describe conditions as “middling,” up from 43% to 46% this quarter. But only 15% describe business conditions as “bad.”

“Small business owners seem to be more heavily factoring the political environment into their confidence estimations than the economic environment. The economy has shown promising growth over the last quarter, with fewer concerns about a recession economy-wide now and less immediate threat from a banking crisis,” Wronski said.

In the confidence index scoring, rather than broader survey questions, there was a notable drop for Biden. According to SurveyMonkey, overall approval of the president now matches the same level as Q3 2022 survey, with 31% saying they approve and 68% saying they disapprove of the way Joe Biden is handling his job as president. The small business survey data matches the overall trend in the recent FiveThirtyEight polling average.

But Wronski said, “What’s really surprising is that general confidence among small business owners is falling now for the first time among Biden’s supporters.”

With the overall confidence index back at the all-time low of 42, the gap in confidence index scoring specifically between Biden’s supporters and his detractors is now a record-low 18 points, according to SurveyMonkey (55 versus 37). Among survey respondents who identify as Democrats, the quarterly confidence score declined from 58 to 52, the lowest it has been since Biden became president. Among independents, the decline was from 49 to 42, the lowest it has been among these respondents since the first quarter of 2021. Republican confidence moved the least, declining from a score of 39 to 37.

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August 22, 2023
How to Evaluate (and Lower) the Interest Rate on Your Small Business Loan | Entrepreneur
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Opinions expressed by Entrepreneur contributors are their own.
Small business financing can help your business get to the next level, and there are multiple factors you should consider when evaluating loan offers. While the interest rate doesn’t tell the whole story, it is a significant factor that can’t be overlooked.

Your interest rate determines how much you’ll pay over the life of the loan, and a low rate leads to lower monthly payments and increased savings. Alternatively, an interest rate that’s too high can lead to financial instability.

Whether you’re looking to take out a loan in the near future or later on in the year, it’s a good idea to understand how to evaluate potential interest rates and the steps you can take to lower your rate.

Related: 8 Things Entrepreneurs Should Look for When Getting a Business Loan

How to evaluate the interest rate on a small business loan

Here are some factors you can use to evaluate interest rates:
- The lender: Your interest rate will vary depending on the type of lender you work with. For example, banks and credit unions tend to offer the lowest interest rates on business loans. Nonbank lenders may offer slightly higher rates, but the application process is more streamlined, and you’ll receive the funds faster.
- Fixed vs. variable rates: When you take out a business loan, you’ll receive either fixed or variable interest rates. A fixed-rate loan will stay the same over the life of the loan, while variable interest rates will change depending on current market conditions. In the beginning, a variable rate may be lower than a fixed interest rate, but this can quickly change if certain indexes — like the prime rate — go up or down.
- The loan terms: It’s also important to consider the loan terms you’re offered. For example, let’s say you’re comparing a loan with three-year terms vs. 10-year terms. The 10-year loan terms may come with a slightly higher interest rate but lower monthly payments. In comparison, you’ll pay less interest overall on a three-year loan, but your monthly payments will be higher.
- The financial health of your business: Finally, you need to consider the overall financial health of your business. Would the interest rate negatively impact your overall cash flow and ability to repay the loan? If the payments put a significant strain on your business finances, the loan may not be worth it.
The interest isn’t the only factor that affects how much you’ll pay for the loan. Some lenders charge additional fees, like origination fees, application fees or closing costs. The fees will drive up the total cost of the loan, so you should talk to your lender and ask them to outline what fees you’ll have to pay.

Related: 5 Ways to Avoid Paying Too Much on a Business Loan

3 ways to lower your interest rate

The rate you receive on a business loan depends on a variety of factors, including your business finances, credit score and the industry you’re operating within. If the rate you’re offered is higher than you’d like, here are some steps you can take to lower it.

1. Improve your credit score:

In addition to checking your business credit score, your lender may look at your personal credit score. If you have poor personal credit, this can affect the rates you receive on a business loan or make it hard for you to get approved.

To improve your credit score, focus on lowering your credit utilization rate by paying down as much debt as possible. You should also pay your bills on time since late payments can stay on your credit report for up to seven years.

2. Put down collateral:

Your lender may be willing to give you a lower interest rate if you put down some type of collateral on the loan. Collateral lowers the risk to your lender since they can seize the collateral if you default on the loan.

You can use cash or a tangible asset, like equipment or inventory, for collateral on a loan. However, you should make sure you’re confident about your ability to repay the loan before putting down collateral.

3. Shop around:

The rates offered by different lenders can vary widely, so the best way to save money on interest is by shopping around. Choose several different lenders, and get prequalified with each one, comparing the rates and terms offered by each.

Of course, filling out multiple business loan applications can be a little tedious. Another option is to use a lending marketplace — you’ll apply once and receive offers from multiple lenders in one location.

Related: How to Choose the Best Small Business Loan for Your Needs

Next steps

When it comes to small business loans, what’s considered a “good” interest rate will vary. An interest rate that is acceptable for one business owner may be way too high for someone else.

It’s important to make a decision based on the financial needs of your business. Consider all your options, and work with a lender you trust so you can find the best financing options for your business.
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Joseph Camberato

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July 5, 2023
3 Ways to Shore Up Your Business Finances in a Tight Economy | Entrepreneur

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Opinions expressed by Entrepreneur contributors are their own.

Around the country, many small businesses are feeling the burden of inflation. Increased costs on everything from raw supplies and shipping to labor and utilities are cutting into the already razor-thin margins that many of them operate with. Add to this the threat of a looming recession and other macroeconomic headwinds, and it’s easy to see why entrepreneurs are looking for ways to shore up their finances and save money.

Recently, I joined Intuit QuickBooks, specifically because I wanted to help small businesses better manage their finances amid these challenges. Based on what I’ve seen, the good news is that despite these challenges, there are many ways that businesses can improve holistic cash flow — often with some easy operational changes and simple-to-use tools and platforms.

Here are three strategies for shoring up finances that I recommend to entrepreneurs to best position themselves for success.

Related: How Great Entrepreneurs Find Ways to Win During Economic Downturns

1. Assess your inventory

One of the first things I recommend for product-based businesses looking to improve their finances is to critically analyze your sales and inventory to better understand your customer base as well as what’s driving expenses and profits.

For example, soon after joining QuickBooks, I heard the story of our customer, Jessica Spaulding, the founder of Harlem Chocolate Factory. While many of us may not realize it, chocolate is both a capital- and time-intensive business, with high overhead in the form of quality, fair trade ingredients and talented chocolatiers who develop recipes and even individual treats by hand. Soaring prices of raw ingredients as well as supply chain issues threatened to disrupt the business Spaulding worked so hard to build — a message many small business owners can relate to.

To combat this and move forward strategically, Spaulding took a step back and looked at what her books were telling her. What products were selling the most? What wasn’t selling? Using these insights, she redirected her team to be laser-focused on the products and flavors that were driving the most business and profit. She was also able to decrease her overhead in the short term, as she cut back on the ingredients needed to create less popular flavors.

As I mentioned, closely examining your inventory and sales history is something that all product-based businesses can do. Use your bookkeeping solution to analyze the sales of individual SKUs and look for any trends in your sales — whether it be seasonal, channel-based, location-based or influenced by another factor. You can also work with your accountant or bookkeeper to better understand where you may be able to trim costs or double down to boost profits. Finally, once you’re armed with these insights, put them into action like Spaulding did — honing in on the products that are resonating most with customers.

Related: 6 Key Tips for Leading Transparently in Economic Uncertainty

2. Secure working capital

It’s often been said that it “takes money to make money.” The more I talk to entrepreneurs, the more I think that’s true. The importance of working capital for businesses that are growing or getting off the ground cannot be understated. Unfortunately, the traditional lending system — with long, drawn-out processes and an emphasis on past business credit — is not designed to support many fledgling businesses.

The good news is that now more than ever there are alternatives for business owners to explore when it comes to securing funding. One option is crowdfunding through websites like GoFundMe and Kickstarter, which allow businesses to launch digital fundraisers. Peer-to-peer or marketplace lending via platforms like Lending Club or Prosper that connect borrowers and lenders online are another avenue to explore. There’s also a multitude of small business grants out there — from federal and regional-based programs, those sponsored by corporations, or some specifically designed for members of certain communities like veterans or women. Be sure to store your applications in a Word or Google document to reference later, rather than just submitting via the online form. This will save you some leg work when filling out future applications.

Another path I learned about recently was that of QuickBooks customer, Grace+Love Candle Co., who secured funding through us when they were originally denied by traditional banks. Unlike a bank loan, QuickBooks Capital doesn’t require an extensive application process. Rather, it determines creditworthiness by analyzing the company’s history as shown by the data in their books.

The most important thing to remember when working to secure capital is not to get discouraged. While you may hear many “nos,” during your journey, it only takes one “yes,” — and as I’ve outlined, there are a myriad of different options available to explore.

Related: 3 Steps to Effectively Lead Through Uncertain Financial Times or Company Restructuring

3. Speed up and diversify payments

Now more than ever, consumers (and even businesses) expect to be able to pay seamlessly in a variety of ways — from credit cards to PayPal, Venmo, ACH and more. This means businesses need to embrace and diversify integrated payment systems, allowing customers to pay across multiple channels (i.e. mobile, online, etc.) and accept multiple forms of payment. In addition to meeting customer expectations and helping to increase sales conversion, digital payments also mean money hits a business’s bank account faster.

While it may not seem significant, the impact of real-time payments can be tremendous. For example, instant payments — rather than a delay of a few days — may help a small business owner who needs to make payroll, pay rent or place an order for supplies. Take a look at how quickly your payments are currently processed. If it’s longer than a day, there are likely options you can look into that are faster.

Entrepreneurs have shown their resiliency in spades the past several years. While we may be entering a difficult economic climate, I have no doubt they will continue to overcome these challenges. The more small businesses can do now to shore up their finances — from strategically evaluating their inventory and analyzing sales to understanding the funding sources available and embracing integrated payments, the better positioned they’ll be in to succeed despite looming challenges.

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Rich Rao

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May 5, 2023
How to keep your business deposit cash safe during a banking crisis

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Pedestrians pass in front of an automatic teller machine (ATM) at a First Republic Bank branch in Los Angeles, California, U.S.

Bloomberg | Bloomberg | Getty Images

You might think that small businesses, which are more likely than the average depositor to have accounts above the federal deposit insurance limit of $250,000, might be uneasy about the U.S. banking system. And you would be right.

The past two months have been rough on the U.S. banking system: Three fast-growing regional banks failed in succession when depositors lost confidence in the banks’ stability and yanked their money, culminating in the over $100 billion pulled from First Republic Bank and eventual sale to JPMorgan. JPMorgan CEO Jamie Dimon declared “this part of the crisis is over” after his bank’s deal, but the volatility in regional banking stocks continued on Thursday, with shares of PacWest plunging.

But small business owners have other worries on their minds when it comes to financial relationships and risks. For one, higher interest rates and more difficulty getting access to capital including loans to grow. And at a time of higher prices on many core business inputs, a rush to switch financial institutions as part of risk management, even with the best of intentions, could lead them to overpay in bank account fees and sacrifice valuable, high-touch relationships.

Right now, small business owners are split about evenly between those who express confidence in America’s banking system and those who do not (49% vs. 50%), according to the Q2 CNBC|SurveyMonkey Small Business Survey released on Thursday morning. A majority (62%) say they are confident their business capital is secure. But fewer (53%) say it is easy for them to access the capital needed for their business to operate. With lending expected to tighten further in the wake of the three banks’ failures, and another interest rate hike by the Federal Reserve on Wednesday pushing business loans firmly into double-digit percentage territory for many borrowers, the worries will persist.

Kirsten Quigley, the CEO of Lunchskins, a Bethesda, Md.-based small business that sells environmentally friendly sandwich bags, said the interest rates on the loans Lunchskins uses for working capital have more than doubled in the past year. “When you’re funding your growth with that kind of debt. It really takes a toll on your cash flow,” said Quigley.

The regional bank she uses, Eagle Bank, isn’t anywhere near the “too big to fail” category.

But she values the personal attention she gets for her firm, which was founded in 2008 and is now in more than 13,000 grocery stores nationwide, including Walmart, Target and Kroger. In March, the CEO of the Bethesda-based Eagle Bank, which has 14 locations, sent a note to its customers assuring them that it has ample reserves. “It’s a physical office and physical person,” Quigley said. “When I call, they call back.”

Small businesses can feel like they’re up against a wall. They don’t have the leverage of a big business to negotiate a special deal on interest rates and fees, or the luxury of time to keep moving their financial services around.

But there are steps small businesses can take to manage their financial services relationships that balance risks, costs and time.

Always keep up on interest rate offers.

Quigley keeps tabs on the interest rates, so she knows that while rates are high, what she gets from her local bank is competitive.

According to the CNBC survey, small business owners are almost evenly split across banking institutions by size. About 40% of small business owners say they do their business banking with a large bank. Almost equal percentages work with regional banks (31%) and community banks (32%).

Safety of deposits is a concern, but not a huge one.

Safety is a concern, and the PacWest headlines are sending more jitters through the market, but overall, national banking system data shows that the deposit safety issue is a shrinking one. In the wake of the three bank failures, some depositors pulled money from smaller and regional banks and put them into larger banks. But the outflows stabilized by the end of April, down only about 1% at the 850 smallest banks, according to the Federal Reserve Board of Governors deposits data.

The CNBC survey finds that the majority of business owners (71%) do not plan to open new accounts in the next year, while 43% say they’re moving money from one account to another about as frequently as they were a year ago.

Bank size does matter to business owners.

That doesn’t mean there’s no distinction being made by owners based on bank size. When asked if it is easy to access necessary capital right now, the percentages go down by large bank client (59%) to regional bank client (56%) to community bank client (50%), according to the survey. And there is a similar small it noticeable trend line on confidence that their business capital is secure: 67% among large bank clients; 66% among regional bank clients; and 60% among community bank clients.

“There is a run to larger banks,” said Eleni Delimpaltadaki Janis, CEO of Equivico, an impact investment firm that provides capital to responsible lenders to increase fair lending to underserved small businesses.

Big banks aren’t necessarily the best choice.

Delimpaltadaki Janis doesn’t think the biggest banks are the best choice for the majority of small businesses. “That’s not who they’re interested in banking,” she said.

In fact, the CNBC survey that among the minority of business owners who do plan to open a new account in the next year, they are almost evenly split between planning to do so with a large (30%), and regional or community bank (28%).

“On the other side, you must protect your money,” Delimpaltadaki Janis said.

She advises small businesses worried about safety to look for a bank that offers an insured cash sweep account. If your balance exceeds the $250,000 federal insurance cap, money will be automatically moved into other institutions, multiplying your cap by two to five times.

It’s worth noting that, in the wake of the three bank failures, the Federal Deposit Insurance Corp. recommended that the federal government expand its insurance program for business accounts.

There’s not much a small business can do about the rising interest rate environment. But you can look for banks that are more likely to approve your loan or an expansion in the first place, or work with you to find the right credit line. Small business owners say emotional support and the time savings of being able to reach people is a under-valued commodity.

“I bank with CommunityAmerica Credit Union,” said Isaac Collins, who owns three Yogurtini franchises in Kansas City, Missouri, by email. “It’s a local credit union here in KC and I LOVE my experience with them. … I have an entire team that I can reach out to serve me in whatever area I want without even going into a local branch. That buys a lot of my time back since I’m so busy!”

Review a bank’s loan approval rates.

If you sever your ties with a smaller bank in the interests of safely, you might make it less likely that you’re approved for a loan. Even though more small businesses apply at a large bank for a loan at a higher rate than any other, small banks and alternative lenders, including online lenders, approve loans at higher rate than large banks, according to the Federal Reserve’s Small Business Credit Survey 2023. Some 82% of loans were approved at small banks, versus 68% at the 25 largest banks. Online lenders and finance companies were in between, at 76% and 71%, respectively.

Be wary of credit card offers as loan replacement.

In a higher interest-rate environment, banks are more likely to try to sell credit card financing to small businesses. There are valuable offers to be had; some bank credit cards offer travel and cash rewards. But in the current rate environment which has seen the Fed raise its benchmark rates from 0% to 5% in a year, credit card debt can come at interest rates topping 25% annually. “Credit cards can be expensive – in a rising interest rate environment they will be especially so,” said Andy Schmidt, vice president and global industry banking lead for CGI, a Montreal-based IT and business consulting firm. “One does need to be careful.”

Seek interest on cash accounts.

Everyone is chasing higher interest rates on accounts right now. That’s not a business owner phenomenon specifically, with individual savers fleeing low-yielding big bank deposit accounts for money market funds and other higher-yielding offers in the 4% to 5% range as long as they can lock up money for longer without a liquidity issue. According to one recent estimate offered on CNBC, as much as $1 trillion could move out of bank deposit accounts yet, not for safety concerns, but as investors and savers seek higher yields.

For business owners who might not have the leverage to lower the interest rate on debt or a working credit line, the flexibility of financial offerings today and the ease of moving money between financial institutions — which the Silicon Valley Bank run proved — is a reason to seek a higher interest rate on the cash you maintain in accounts. As a small business, you might have tens or hundreds of thousands of dollars on average in your accounts; that money can be earning interest of as much as 4%, Schmidt said.

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May 4, 2023
Rent or buy? Here’s how to make that decision in the current real estate market

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Choosing whether to rent or buy has never been a simple decision — and this ever-changing housing market isn’t making it any easier. With surging mortgage rates, record rents and home prices, a potential economic downturn and other lifestyle considerations, there’s so much to factor in.

“This is an extraordinarily unique market because of the pandemic and because there was such a run on housing so you have home prices very high, you also have rent prices very high,” said Diana Olick, senior climate and real estate correspondent for CNBC.

By the numbers, renting is often cheaper. On average across the 50 largest metro areas in the U.S., a typical renter pays about 40% less per month than a first-time homeowner, based on asking rents and monthly mortgage payments, according to Realtor.com.

In December 2022, it was more cost-effective to rent than buy in 45 of those metros, the real estate site found. That’s up from 30 markets the prior year.

How does that work out in terms of monthly costs? In the top 10 metro regions that favored renting, monthly starter homeownership costs were an average of $1,920 higher than rents.

But that has not proven to be the case for everyone.

Leland and Stephanie Jernigan recently purchased their first home in Cleveland for $285,000 — or about $100 per square foot. The family of seven will also have Leland’s mother, who has been fighting breast cancer, moving in with them.

By their calculations, this move — which expands their space threefold and allowing them to take care of Leland’s mother — will be saving them more than $700 per month.

‘You don’t buy a house based on the price of the house’

“You don’t buy a house based on the price of the house,” Olick said. “You buy it based on the monthly payment that’s going to be principal and interest and insurance and property taxes. If that calculation works for you and it’s not that much of your income, perhaps a third of your income, then it’s probably a good bet for you, especially if you expect to stay in that home for more than 10 years. You will build equity in the home over the long term, and renting a house is really just throwing money out.”

Mortgage rates dropped slightly in early March, due to the stress on the banking system from the recent bank failures. They are moving up again, although they are currently not as high as they were last fall. The average rate on a 30-year fixed-rate mortgage is 6.59% as of April — up from 3.3% around the same time in 2021.

But that hasn’t significantly dampened demand.

“As the markets kind of bubbled in certain parts of the country and other parts of the country priced out, we’ve seen a lot of investors coming in looking for affordable homes that they can buy and rent,” said Michael Azzam, a real estate agent and founder of The Azzam Group in Cleveland.

“We’re still seeing relatively high demand” he added. “Prices have still continued to appreciate even with interest rates where they’re at. And so we’re still seeing a pretty active market here.”

Buying a home is part of the American Dream

The Jernigans are achieving a big part of the American Dream. Buying a home is a life event that 74% of respondents in a 2022 Bankrate survey ranked as the highest gauge of prosperity — eclipsing even having a career, children or a college degree.

The purchase is also a full-circle moment for Leland, who grew up in East Cleveland, where his family was on government assistance.

“I came from a single-mother home who struggled to put food on the table and always wanted better for her children … it was more criminals than there were police … It is not the type of neighborhood that I wanted my children to grow up in,” said Jernigan.

The new homeowner also has his eye on building a brighter future for more children than just his own. Jernigan plans to purchase homes in his old neighborhood, renovate them and create a safe space for those growing up like he did.

“I’m here because someone saw me and saw the potential in me and gave me advice that helped me. … and I just want to pay it forward to someone else” Jernigan said.

Watch the video above to learn more.

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April 26, 2023
How to Choose a Credit Card for Your Startup | Entrepreneur
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Opinions expressed by Entrepreneur contributors are their own.
Even if you’ve raised a lot of money for your startup and have plenty of cash in your bank account, to fulfill many of the day-to-day bureaucracy of operating your business, you’ll need a credit card.

A business credit card is a credit card designed for business use, typically offered to business owners, entrepreneurs and small business owners.

These cards are separate from personal credit cards, and there are several reasons why you might prefer a business credit card over a personal credit card. Using a business credit card can help you keep your business expenses separate from your personal expenses. This makes it easier to track your business expenses for accounting and tax purposes, and can also help you avoid co-mingling funds, which can be a problem if you’re audited by the IRS.

Related: Do You Need a Business Checking Account for Your Startup? It Depends on These 8 Factors.

Also, business credit cards often have higher credit limits than personal credit cards, which can be helpful if you need to make large purchases for your business. Lastly, many business credit cards allow you to issue employee cards and set spending limits on those cards. This can help you control your employees’ spending and ensure that they only use the card for business-related expenses.

Business credit cards are issued by banks and other financial institutions, and the terms and requirements for obtaining one will vary depending on the issuer. Different business credit cards have different benefits that you’ll want to consider before deciding which card is right for you.

Low or no annual fee

Although cards with hefty annual fees tend to provide more benefits, you still need to offset the annual fee with your card rewards.

Fortunately, there are some excellent business cards that have a low or no annual fee. You’ll need to assess whether it is worthwhile paying an annual fee for your new card.

Low fees

In addition to an annual fee, you may face transaction fees, interest charges, cash balance fees and other expenses. With the wrong card, any rewards you earn will quickly disappear to cover your fees.

You should be aware of all the potential fees before you sign up for your new business credit card. If the card offers good rewards, you may decide that it is worth paying more in fees, but you need to think about how the card will perform in the long term.

Bookkeeping tools

Many business cards provide account management tools, which can be a massive benefit when you want to remain organized at tax time.

If there are particular features that could simplify your business admin or that are compatible with your existing business software, this can be a great advantage for you.

Credit reporting

One of the priorities of your startup for the long term must be to build its credit history. As credit history is established, it will open new avenues of credit for your business.

So, you need to ensure that your new business credit card will report to the major credit bureaus.

Employee cards

As the owners of a startup, you’ll have plenty of things to take care of. This means that you won’t want the hassle of needing to handle every business purchase.

If your new card allows employee cards, you can empower your team to pay for items and eliminate the need to deal with expense reimbursements. This will also help you to keep better track of all your business spending.

Responsive support team

As a startup, you are likely to be anticipating fast growth and have unpredictable spending. Whether you need to increase your credit limit or require certain features, you will need to be confident that the support team will be on hand to help.

Travel features

If you need to travel for your business, you should look for a card that has travel features. From no foreign transaction fees to airport perks, there are some excellent card benefits around.

Bear in mind that if you plan on traveling internationally, you may want to choose a card that has broad merchant acceptance, such as Mastercard or Visa. If you’re not sure whether to choose cash back or a travel card, calculate expected monthly rewards to understand which is better, or just apply for two cards if it’s possible.

Solid dashboard

Finally, to effectively manage your credit card account, you need access to a clean dashboard and a smooth-running app. If you are dealing with time-sensitive issues such as payments, you’ll find it frustrating to try to deal with a clunky app or a dashboard that is not intuitive.

It is well worth checking online credit card reviews as well as the reviews for the credit card app to see if there are any red flag issues that could highlight potential problems.

What you’ll need to apply for a business credit card

As a startup, you may be unfamiliar with what you need when applying for a business credit card. So, here we’ll break down what you will need to have on hand to support your application.

While the requirements for different credit cards can vary from issuer to issuer, the commonly requested information includes:
- Your tax ID number: If you don’t have a tax ID for your new business, and many entrepreneurs do not, you can usually use your personal Social Security number.
- Your business name: If you have a legal name for your business, you can use it on your application. If you are a consultant, freelancer or other operation without a business name, you can use your own name.
- Your legal entity: This is part of the application where you will need to identify how the business is organized. Most small businesses and startups in the U.S. don’t have a formal legal structure as they operate as sole proprietorships, where the individual owner essentially is the business. You can still apply for a business credit card as a sole proprietor, but if you are a partnership or have another type of legal business structure, use this on the application.
- Business address details: If your business has a separate address, phone number and email address from your personal details, you will need to provide them. If you don’t have a separate business line or business location, you can use your personal details.
- The business start date: This is fairly straightforward, but you need to be accurate and use the date that you formed your startup.
- Business revenue: The revenue is the amount of money your startup brings in, which is different from your profit. As a startup, you may not have yet received any revenue, but you can put $0 on the application.
- Type of industry: This is different from the business structure and the bank or credit card issuer needs to know what industry or niche you work in.
- Interested parties: Finally, you need to provide details on any individuals who own 25% or more of your business. If your business does have co-owners or interested parties, you should have their names, addresses, Social Security Numbers and dates of birth as the issuer may request them.
As with a personal credit card, shopping around for the right product is well worth the time. So, before you make a decision about a credit card for your startup, be sure to check all the available options.

How to determine eligibility for a business credit card?

To determine eligibility for a business credit card, the following factors are typically considered:
1. Business and personal credit score: Your business credit score is one of the most important factors in determining your eligibility for a business credit card. A higher credit score will generally make it easier to qualify for a card. Although a personal credit score is not the most important factor in determining eligibility for a business credit card, it may be considered if your business does not have a credit history.
2. Business income: Your business income is also considered when determining your eligibility for a business credit card. Lenders will typically want to see that your business generates enough income to cover the credit card payments.
3. Business history: The length of time your business has been in operation, as well as its financial history, will also be considered when determining your eligibility. A business with a longer history and a positive financial track record will generally have an easier time qualifying for a business credit card.
4. Business type: Some credit cards are tailored to specific types of businesses and may require certain qualifications to be met.
It’s also important to note that different credit card issuers have different requirements and standards for approving business credit card applications, so it’s always best to check with the lender for more specific information.
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Baruch Mann (Silvermann)

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March 22, 2023
Free Webinar | March 22: What Entrepreneurs Should Consider Writing Off | Entrepreneur
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Tax season is here (hooray?) and to make sure that you don’t leave a single penny on the table, we have called in our resident tax experts to walk you through the specifics of write-offs for entrepreneurs. Whether you are a full-time small business owner or making extra money with a side hustle, this webinar is essential to making sure you wind up with the best tax bill or refund possible.

Mark J. Kohler — author, CPA, attorney, and cohost of the podcast “Refresh Your Wealth” — and Mat Sorenson — author, attorney, and CEO of Directed IRA & Directed Trust Company — have been at this for years, and these self-described “tax geeks” have all of the answers to your write-off questions. During this webinar, they’ll teach you:
- Commonly missed home office deductions
- Auto and travel write-offs
- Changes to meals and entertainment rules
- Red flags that can trigger audits
- Changing your entity (LLC, S-corp) structure to save taxes
- And more!
This free webinar can save you a lot of dough on Tax Day — don’t miss it! Register now and join us on March 22nd at 3:00 PM ET.

About the Speakers:

Entrepreneur Press author Mark J. Kohler, CPA, attorney, co-host of the Podcast “Refresh Your Wealth”, and a senior partner at both the law firm KKOS Lawyers and the accounting firm K&E CPAs. Kohler is also the author of “The Tax and Legal Playbook, 2nd Edition”, and “The Business Owner’s Guide to Financial Freedom.

Mat Sorensen is an attorney, CEO, author, and podcast host. He is the CEO of Directed IRA & Directed Trust Company, a leading company in the self-directed IRA and 401k industry and a partner in the business and tax law firm of KKOS Lawyers. He is the author of The Self-Directed IRA Handbook.
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Entrepreneur Staff

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February 23, 2023
3 Recession-Proof Strategies for Small Business Owners
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Opinions expressed by Entrepreneur contributors are their own.
Unless you’ve been hiding under a rock, you’ve probably read the dreary forecasts from JPMorgan, Citi and Goldman Sachs, which all agree that 2023 will be a rough year for the economy, perhaps even kicking off a “mild recession.”

But try as they might with their recession talk on the heels of a global pandemic, supply chain chaos and market upheaval, we resilient entrepreneurs aren’t ready to throw in the towel quite yet.

Small business owners’ most significant advantage is our ability to stay nimble and pivot toward opportunity. I say this as someone who built and exited a company after the last recession — when many founders rode a wave of “creative destruction” where smaller competitors thrived as big firms faltered. The little people, not the corporate behemoths, were best positioned to pick up the pieces and innovate.

To see how others feel about this moment, Hello Alice surveyed 2,635 small business owners to gauge their sentiment heading into the new year. The findings, published in partnership with Mastercard, show that while nearly two-thirds of entrepreneurs are worried about a potential recession, an astounding 73% predict their businesses will grow this year.

If that sounds counterintuitive, I agree. But a closer look at the results illustrates how scrappy entrepreneurs can be in the face of adversity. Rather than wait and see what happens, owners are already crafting action plans and seeking solutions to prepare them for the challenges ahead.

Based on our survey results, here are three strategies for small business owners hoping to beat the 2023 trendlines.

Related: 7 Recession-Proof Industries to Protect Your Money

1) Make sure you have access to working capital now

In uncertain times, small business owners need additional funding, particularly those mainly relying on bootstrapping.

Why? Here are a few findings to set the scene:
- 66% of owners said their expenses increased in 2022
- 70% said their revenue stalled or decreased in 2022
- 70% plan to apply for funding in 2023
So far, entrepreneurs have successfully combatted inflation with price increases and adjustments to product offerings. Nearly two-thirds of owners said their business ended 2022 in a financial position as good or better than the year before. But the convergence of expenses and revenue tells a story of shrinking margins squeezed by inflated costs. You can’t raise prices forever, and events like a recession are certain to upend sales forecasts.

Consider the following options to ensure you have ample working capital to overcome any financial surprises:
- Develop a relationship with your bank. Lay the groundwork now, and you’ll have a friendly face to help you navigate available resources and facilitate potential financing applications.
- Seek out a business credit card. Credit cards help you cover unexpected expenses and pursue new opportunities, often while earning valuable rewards that you can reinvest in your business.
- Visit the Small Business Funding Center. This free resource matches you with relevant grants, loans, and credit opportunities.
Related: How to Know If You Need Funding (and How to Get It)

2) Get scrappy with tech solutions

In our outlook survey, businesses ranked marketing among their top concerns. Owners are worried that price increases will reduce their overall customers, and the end of budget-friendly digital marketing makes customer acquisition more difficult (and expensive) than ever.

Thankfully, a growing range of tech solutions can help owners optimize their marketing efforts while fitting into any budget. Here are a few ideas to get started:
- Adopt software tools. Platforms like Constant Contact, Hubspot Marketing Hub and Sprout Social help you target your audience and amplify your reach.
- Explore freelance help. Resources like Fiverr, Upwork, and MarketerHire can match you with affordable digital marketing support to take the work off your plate.
- Look for discounts. Take advantage of introductory offers and seasonal discounts to test-drive tools before making a long-term commitment. Not sure where to look? The Hello Alice Business Solutions Center is one free resource that curates deals on popular software solutions to help owners shop and save.
3) Be ready to fail fast and fail often

Finally, in a reassuring sign that owners feel confident, a majority of small businesses plan to hire this year. According to our survey, twice as many business owners plan to hire in 2023 (52%) as were actively hiring in 2022 (26%). Growing headcounts are a proxy for growing businesses, but there’s still an inherent danger to making big changes, especially during uncertain times.

Instead, operate with a startup mentality that sets up low-stakes experiments to explore an idea’s potential. Rather than dump your marketing budget into TikTok, test the waters with different types of content. Before bringing someone on full-time, trial them on a part-time or project basis. Set goals, measure outcomes, and assess where to go from there.

Some of your 2023 experiments are sure to fail, but this innovative mindset helps you conserve valuable resources to invest in long-term growth in the years to come. And remember, the economy may flounder for a bit, but as entrepreneurs, times of uncertainty are when we thrive.

Related: By Failing to Prepare, You Are Indeed Preparing to Fail
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Carolyn Rodz

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January 30, 2023
Fed interest rate hike sends business loans to steepest cost since 2007, breaking 10% sticker shock level

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With the Federal Reserve’s latest rate hike adding half a percentage point to the cost of debt capital and reaching its highest level in 15 years, the majority of small business loans will hit the double-digit interest level for the first time since 2007.

The cost of taking out loans, and making monthly interest payments on business debt already has been rising swiftly after successive mega 75 percentage point rate hikes from the Fed, but the 10% level is a psychological threshold that small business loan experts say will weigh on many entrepreneurs who have never experienced a loan market this elevated.

Small Business Administration lenders are limited to a 3% maximum spread over the Prime Rate. With Wednesday’s rate hike raising Prime to 7.5%, the most common SBA loans will now surpass the 10% interest level. It’s the highest level for the Prime Rate since September 2007.

To veteran small business lenders, it’s not a new experience.

“Prime was 8.25% in May 1998 when I started in the SBA lending industry, 24 years ago,” said Chris Hurn, founder and CEO of small business lender Fountainhead.

Loans he made at that time were at the very common Prime+2.75% (then the maximum over Prime that any lender could charge on an SBA loan), or 11%. But that was the norm rather than a sea change in rates in a short period of time.

“In less than a year, we will have gone from the 5-6% range to a doubling and it will have a tremendous psychological effect,” Hurn said.

The monthly interest payment owners will be making isn’t very different from what’s already become one of the primary costs of Fed rate hikes on Main Street. Servicing debt at a time of input inflation and labor inflation is forcing business owners to make much tougher decisions and sacrifice margin. But there will be an added psychological effect among potential new applicants. “I think it’s started already,” Hurn said. “Business owners will be very careful taking out new debt next year,” he added.

“Every 50 basis points costs more and there’s no denying it, psychologically, it is a big deal. Many business owners have never seen double-digits,” said Rohit Arora, co-founder and CEO of small business lending platform Biz2Credit. “Psychology matters as much as facts and it could be a tipping point. A few people over the past few weeks have said to me, ‘Wow, it will be double digits.’”

A monthly NFIB survey of business owners released earlier this week found that the percentage of entrepreneurs who reported financing as their top business problem reached its highest reading since December 2018 — the last time the Fed was raising rates. Almost a quarter of small business owners said they are paying a higher rate on their most recent loan, and the highest since 2008. A majority (62%) of owners told NFIB they are not interested in applying for a loan.

“The pain is already in, and there will be more,” Arora said.

That’s because beyond the psychological threshold of the 10% interest level being breached, the expectation is that the Fed will keep rates elevated for an extended period of time. Even in slowing rate hikes and potentially stopping rate hikes as soon as early next year, there is no indication the Fed will move to cut rates, even if the economy enters a recession. The latest CNBC Fed Survey shows the market forecasting a peak Fed rate around 5% in March 2023 and the rate being held there for nine months. Survey respondents said a recession, which 61% of them expect next year, would not alter that “higher for longer” view.

The latest Fed projection for the terminal rate released on Wednesday rose to 5.1%.

This problem will be exacerbated by the fact that as the economy slows the need to borrow will increase for business owners facing declining sales, and unlikely to see additional support from the Fed or federal government.

Getting inflation down from 9% to 7% was likely to be the quicker change than getting inflation from 7% to 4% or 3%, Arora said. “It will take a lot of time and create more pain for everyone,” he said. And if rates don’t come down until late 2023 or 2024, that means “a full year of high payments and low growth, and even if inflation is coming down, not coming down at a pace to offset other costs,” he added.

As economist and former Treasury Secretary Larry Summers recently noted, the economy may be moving into the first recession in the past four decades to feature higher interest rates and inflation.

“We are in for a long haul problem,” Arora said. “This recession won’t be as deep as 2008 but we also won’t see a V-shaped recovery. Coming out will be slow. The problem isn’t the rate increase anymore, the biggest challenge will be staying at these levels for quite some time.”

Margins already have been hit as a result of the rising costs of monthly payments, and that means more business owners will cut back on investments back into the business and expansion plans.

“Talking to small business owners looking for financing, it’s starting to slow things down,” Hurn said.

There is now more focus on cutting costs amid changing expectations for revenue and profit growth.

“It’s having the effect the Fed wants but at the expense of the economy and expenses of these smaller companies that are not as well capitalized,” he said. “This is how we have to tame inflation and if it hasn’t already been painful, it will be more painful.”

Margins have been hit as a result of the costs of monthly payments — even at a low interest rate, the yearlong SBA EIDL loan repayment waiver period has now ended for the majority of business owners eligible for that debt during the pandemic, adding to the monthly business debt costs — and investments back into business are slowing down, while expansion plans are being put on hold.

Economic uncertainty will result in more business owners borrowing only for immediate working capital needs. Ultimately, even core capital expenditures will get hit — if they have not been already — from equipment to marketing and hiring. “Everyone is expecting 2023 will be a painful year,” Arora said.

Even in bad economic times, there is always a need for debt capital, but it will curtail the interest in growth-oriented capital, whether it’s a new marketing plan, the new piece of equipment making things more efficient or designed to increase scale, or buying the company down the street. “There will continue to be demand for regular business loans,” Hurn said.

While debt coverage ratios — the cash flow level needed to make monthly interest payments — are flashing warning signs, the credit profile of business owners hasn’t weakened across the board, but banks will continue to tighten lending standards into next year. Small business loan approval percentages at big banks dropped in November to the second lowest total in 2022 (14.6%), according to the latest Biz2Credit Small Business Lending Index released this week; and also dropped at small banks (21.1%).

One factor yet to fully play out in the commercial lending market is the slowdown already in the economy but not yet in the interim financial statements that bank lenders use to review loan applications. Business conditions were stronger in the first half of the year and as full year financial statements and tax returns from businesses reflect second half economic deterioration, and likely no year-over-year growth for many businesses, lenders will be denying more loans.

This implies demand for SBA loans will remain strong relative to traditional bank loans. But by the time the Fed stops raising rates, business loans could be at 11.5% or 12%, based on current expectations for Q2 2023. “When I made my first SBA loan it was 12% and Prime was 9.75%, but not everyone has the history I have,” Hurn said.

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December 14, 2022
NYC public employees among 19 accused of pandemic aid fraud

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NEW YORK — Nineteen people including 17 New York City and New York state public employees were charged in a federal complaint unsealed Wednesday with submitting fraudulent applications for funds intended to help small businesses survive the coronavirus pandemic.

The accused, including employees of New York City’s police department, correction department and public school system, listed themselves as owners of businesses that in some cases did not exist in their applications for funds through the Small Business Administration’s Economic Injury Disaster Loan program and Paycheck Protection Program, federal prosecutors in Manhattan said.

The defendants collectively stole more than $1.5 million from the SBA and financial institutions that issued SBA-guaranteed loans, prosecutors said.

One defendant, a school paraprofessional, claimed in her loan application that she owned a hair and nail salon with 45 employees and $500,000 in annual revenue, according to the complaint. Bank records showed that the defendant in fact had no significant source of income other than her Department of Education salary, investigators said.

The paraprofessional received $150,000 from the Economic Injury Disaster Loan program and spent the money on a trip to Las Vegas and purchases at Louis Vuitton, Macy’s and other retailers, according to the complaint.

“Scheming to steal Government funds intended to help small businesses weather a national emergency is offensive,” U.S. Attorney Damian Williams said in a news release. “And, as public employees, these folks should have known better. This Office will continue to prosecute those who use fraud to line their pockets with taxpayer money.”

The defendants were charged with wire fraud, and nine were also charged with conspiracy to commit wire fraud. One defendant was charged with aggravated identity theft. Information on their attorneys wasn’t immediately available.

Auditors say the speed with which federal emergency loan programs were set up in the early months of the COVID-19 pandemic in 2020 left the programs vulnerable to fraud, though millions of legitimate businesses benefited from the programs.

“There’s no doubt they’ve had a positive impact. However, the management of these programs needs to be dramatically improved,” U.S. Comptroller General Gene L. Dodaro said last year.

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November 30, 2022
Ringleaders in massive COVID fraud extradited to US

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LOS ANGELES — A Los Angeles couple who fled to Europe after being convicted of running a fraud ring that stole $18 million in COVID-19 aid money were returned to the United States to face prison, authorities announced Friday.

Richard Ayvazyan and his wife, Marietta Terabelian, were extradited from the Balkan country of Montenegro, where they were living in a luxury seaside villa before their arrest in February.

They arrived in Los Angeles on Thursday, according to the U.S. Department of Justice.

While they were on the run last year, a court in Los Angeles sentenced Ayvazyan to 17 years in federal prison, and Terabelian to six years.

Prosecutors said the couple and six accomplices fraudulently applied for about 150 relief loans intended to help businesses and employees struggling during the COVID-19 pandemic and lockdown.

They applied using fake identities or names belonging to dead or elderly people and foreign exchange students, prosecutors said.

To back up the applications, they submitted phony tax documents and payroll records for fake businesses to lenders and the U.S. Small Business Administration, prosecutors said.

The money was used for down payments on luxury homes in the Tarzana area of Los Angeles, suburban Glendale and the Palm Desert and to buy “gold coins, diamonds, jewelry, luxury watches, fine imported furnishings, designer handbags, clothing and a Harley-Davidson motorcycle,” said a statement from the U.S. Department of Justice.

Ayvazyan and Terabelian were convicted in June 2021 of conspiracy to commit bank fraud and other federal crimes. Two months later, while free on bond, the couple cut off their ankle monitors and fled, leaving behind their three teenage children, authorities said.

Unemployment fraud was a nationwide problem during the pandemic, as benefit applications overwhelmed state unemployment agencies. Criminals were able to buy stolen identity data on the dark web and use it to file a heap of phony claims.

The federal Labor Department has said that about $87 billion in pandemic unemployment benefits could have been paid improperly nationwide, with a significant portion attributable to fraud. An Associated Press review in March 2021 found that estimates ranged from $11 billion in fraudulent payments in California to several hundred thousand dollars in states such as Alaska and Wyoming.

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November 18, 2022