DavidGass.com

The experts are out and talking about the small business lending market. I have seen “experts” on CNN, Fox, MSNBC and read their articles in the various small business magazines. I believe these so-called experts are clueless about what small business really is.

I was listening to one of them being interviewed on MSNBC and when asked about the size of loans they are talking about the response was – $5,000,000 to $20,000,000.

The expert’s idea of small business isn’t the small business I know. The businesses I’m talking to are looking for financing from $5,000 – $1,000,000. Most want between $25,000 and $200,000. If I may be so bold, I’d like to change the terminology of how small businesses are defined.

The SBA defines small business as any company with less than 500 employees and $300 million in sales. I view small business as companies doing less than $10,000,000 in annual revenue and less than 200 employees. There are three other categories of small business:

Micro businesses with sales from $1,000,000 to $10,000,000 and 25-200 employees.
Mini businesses with sales from $100,000 to $1,000,000 and 3-25 employees.
Tiny businesses with sales less than $100,000 in annual revenue and less than 3 employees.

If you are looking for financing or capital greater than $1,000,000 you are no longer considered a small business. However, this alone does not define small business. There are many other definitions as described above.

As a business owner you have a few certainties in your business life:

You need customers to survive.

You’ll have a roller coaster ride of emotions starting and growing the business.

Without a good bookkeeping system you’ll never know exactly how much profit there was.

Competition is everywhere sooner or later.

And of course, the need for cash flow (capital).

At a minimum there will be the desire to have access to capital regardless if you have to use it or not. Capital can come in several forms. It can be a stash of cash you keep in an account only for emergencies. It can be a credit line (also known as a life line to many businesses) from a bank. It can be a credit line from an alternative financing source. It can be an investor willing to contribute capital to the business.

No matter how you establish access to capital it’s important to have that “life line”. As many of you have heard before the statistics for small business failure are very high in the first year and most don’t survive five years in business. In fact only 4% of business start-ups will ever reach $1,000,000 in annual revenue. That’s right – just 4%, shocking I know. I was surprised myself to realize the low probability of becoming a millionaire as an entrepreneur, although if you compare it to winning the lottery, your chances are much greater for success with starting a business.

So what do you need to do to get that critical “life line” so many entrepreneurs and small business owners require to survive? The answer to that question could be a series of books describing every detail of raising capital and obtaining a loan. In brief they are: Credit, Collateral and Capacity.