Discover the Heart-Wrenching Battle Small Business Owners Face While Seeking Financing!

If you’re thinking of starting a business, now you’ll likely need more seed money as lenders tighten their requirements and move from an environment awash in pandemic relief funds to one where grants and low-interest programs are less available.

Even essential services like child care, a crucial need in North Dakota and throughout the region, face new challenges due to sometimes low profit margins.

For Amy Haugen, her dream of starting her own group daycare will come true in mid-August once the Little Flower Nido & Toddler Montessori program opens in Mandan.

The process has not been without its challenges.

Inflation, interest rate hikes, and a generally tighter credit climate after the COVID relief cash flow subsided, have put small business owners like Haugen in a more difficult position as they start or expand their operations.

Haugen’s process began in April 2022. Finding a place for the daycare was probably the hardest part, she said. He, too, was faced with the challenge of obtaining grants, navigating the red tape to locate the program in a neighborhood, rezoning the house as commercial property, securing potential employees, and finally accessing the loan.

“Some people told me they would have given up and found an 8 to 5 job before they went through what I went through,” said Haugen, who expects the daycare to open in mid-August and eventually care for 30 children.

Ryan Warner, co-owner of Lightspring, said he often feels access to capital for smaller businesses is difficult in a state where commercial lenders focus on larger projects, often from outside investors. Lightspring is an energy technology company in Bismarck.

“We have never been able to get a loan,” Warner said.

In recent meetings between the Small Business Development Center Network, which has branches statewide, and Aikta Marcoulier, regional director for the US Small Business Administration (SBA), an overarching theme emerged: banks. they really tightened credit standards in the last few months.

For many small businesses, that adjustment slowed the process of obtaining financing, if not stopped abruptly, at least until a longer process.

“I didn’t realize the banks have been talking so much about tightening credit standards, they’re not approving as many loans and the interest rates are higher,” said Al Haut, a Fargo-based North Dakota district director. in the SBA.

Haut said this is slowing the development of new businesses and the expansion of existing ones.

Marcoulier said many businesses are looking for grants to help cover start-up costs, but aside from those that cover crucial needs like childcare, grants are few and far between now.
“For the most part, like 99.9% of the time, there are no grants to start a business,” he said.

This makes obtaining business loans that much more important, but the national picture of a lending drought paints a bleak picture.

A June newsletter from the SBA reported tougher standards for commercial, industrial and real estate lending, and demand for loans has reached a decline not seen since the Great Recession in the late 2000s.

A Goldman Sachs survey of about 10,000 small business owners across the country in May showed a dramatic change from last year. A full 77% of respondents indicated concerns about their ability to access capital. A year earlier, 77% said they were confident in accessing capital.

Similar issues are cropping up in North Dakota now that the pandemic cash is gone.

Tyler Demars, director of the Bismarck Small Business Development Center at the Bank of North Dakota, said part of the credit climate can be attributed to the fact that the faucets were turned on fully and turned off again just as quickly.

“There was so much government money flowing in because of COVID and it set unrealistic expectations for businesses, especially people starting businesses at the time,” he said.

Credit history, equity, cash and business plan are all factors in the loan decision. In recent years, lenders were more willing to gloss over problems with one or two of them, he said. They are less willing to do it now.

“Now, if you have more than one question mark, it’s very hard to say that we’re going to be able to do it,” Demars said.

Ashley Hruby, a senior director of lending at Lewis & Clark Development in Mandan, said she’s seeing the lending situation “get a little tougher.”

“A lot of our programs are there to provide that financing gap to help someone get through that traditional financing as a borrower, but even we’re finding where borrowers need to have some equity contribution, and they’re even struggling to get there. with that to access our programs,” Hruby said.

Hruby said smaller daycare startups like Haugen often face challenges getting up and running, even when banks aren’t being so fickle.

“Cash flows are very tight when it comes to a smaller daycare,” he said.

Another aspect that doesn’t get enough attention, said most of those who discussed the loan situation, is that women-owned small businesses traditionally have a harder time getting financing.

Laiken Aune, director of advocacy for the North Dakota Women’s Business Development Center, said accessing capital remains a challenge for women-owned businesses.

A recent survey by the center showed that 80% of today’s women-owned small businesses in the state tapped into their personal savings or used credit cards to finance their startups before seeking traditional loans.

Aune said that organizations like hers and others here are doing much more to provide more education, help guide small businesses through the process, and explain financing options, grants, and where potential investors may be available.

Then there are the questions about whether some women-owned businesses are on a level playing field, even after years of progress in that regard.

“We have heard reports of women still experiencing discrimination, several of whom have been profitable and had to prove themselves at a higher level than some of their counterparts,” Aune said.

Keith Olson, regional director of the Small Business Development Center in Williston, said he has worked with “a lot of great women entrepreneurs” and didn’t think they had a lower success rate compared to male-owned businesses.

According to Olson, “At the end of the day, whether you’re a man or a woman, it comes down to whether you have the money to put into the project and you have the ability to pay it back, and it’s your credit score, okay?”

“I think we can still do a lot of projects,” Olson said. “But I would say, perhaps as a generalization, that it takes another 10% less than a year ago, on average, to close a lot of these deals.”

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