The Toughest State to Start a Small Business
Starting a small businesscan be a challenge no matter where the owner decides to set up shop, but perhaps nowhere is it more challenging than in Nevada.
According to a new study, that three-quarters of businesses in Nevada reported they were unable to grow due to difficulties in obtaining financing. Not surprisingly, business owners in Nevada were also most likely to transfer personal assets to fund their business as a result of limited financing options.
The problem of obtaining capital, however, is hardly just a problem for businesses in Nevada. Nationwide, 64 percent of businesses with revenues under $5 million said that difficulty obtaining financing was limiting their growth potential. Just over 55 percent of businesses nationwide also said limited financing options were affecting plans to grow their work force.
"Unfortunately, the tight credit market is impacting our economic recovery," said John Paglia, director of the Pepperdine Private Capital Markets Project and associate professor of finance at Pepperdine University’s Graziadio School of Business and Management. "Demand for credit is growing, but the supply is not meeting the demand, especially for small businesses. What we are seeing is business owners increasingly looking to unconventional financing options to grow their businesses and in some cases they are putting their expansion plans on hold altogether."
Small businesses are turning to other options as a result of the limited availability of financing. The study found that just fewer than 50 percent of businesses had to transfer personal assets to their businesses because they could not get funding from other sources. A majority of those people transferred personal savings and investments to fund their businesses. After Nevada, businesses in Wyoming, South Carolina, Colorado, Arizona and Virginia were most likely to use personal assets for business.
"As small businesses struggle to secure financing from traditional lenders, they are increasingly dipping into their own pocketbooks," Paglia said. "As long as business owners have personal assets to tap and it makes economic sense to do so, we may continue to see business owners continue this trend until the financing environment improves."
This information was based on the responses of nearly 6,000 small businesses to a survey. The research was conducted by a partnership of Pepperdine University’s Graziadio School of Business and Management and business credit-building company Dun & Bradstreet Credibility Corp.