BWSmallBiz -- Editor's Memo

Editor's Memo


Despite all the jawboning from Washington, commercial banks are still not doing much to improve access to capital for entrepreneurs. As late as the third quarter of 2009, one in three banks said they were tightening their loan standards, and 40% were clamping down on collateral requirements.

What's less well known is that in the wake of the financial crisis, there has been a fundamental rethinking about how young companies should be funded. Two years ago, a company could have twice as much debt as equity on its balance sheet and still get an approving nod from its banker. But although ratios vary hugely by industry, bankers and turnaround experts now generally agree that a healthy small company shouldn't have any more debt than it does equity. Some like to see twice as much equity as debt.

For entrepreneurs, the upshot can be quite unsettling: Even if your company is just as healthy as it was two years ago, and even if your credit score has made it through the recession unblemished, there's a pretty good chance that, to your banker, the loan you got without too much fuss in 2007 now looks way too big. For the 40% of entrepreneurs that say their companies have been damaged by the recession, the picture is much more bleak.

Fortunately, bank loans aren't the only way to fund growth. In our Cover Story, Correspondent Jill Hamburg Coplan provides a road map to the various types of financing now available, and shows which alternatives are best suited for different companies and situations. Hopefully, one of them will be right for you.

Return to the BWSmallBiz December 2009/January 2010 Table of Contents
Kimberly Weisul is editor of BusinessWeek SmallBiz

Best LBO Ever
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus