Many microbusinesses can’t hire more because their owners themselves are struggling. At least half of all microbusiness owners—13 million households—have incomes below the national median of $50,000. Some of the most pressing challenges for these households relate to personal assets and credit, rather than business development itself. CFED’s research has shown that insufficient savings is one of the biggest barriers for micro business owners.
Fifty-five percent of surveyed entrepreneurs couldn’t cover more than one month of business expenses with their savings, and 30% had no savings at all. This financial insecurity is a reality for business owners at virtually all levels of income, but is even more pronounced for business owners who are younger, have lower revenues and lower household incomes.
Limited access to credit has also taken a toll on microbusiness development. In the last few years, there has been a significant decline in conventional banks’ willingness to provide loans to smaller businesses; small business loans from banks are down about 20% since the recession, while loans made to larger businesses have risen by four percent in the same period.
Faced with fewer traditional lending options, entrepreneurs are frequently forced to use predatory lending services, such as Merchant Cash Advances, to keep their businesses operating. Cash flow difficulties are another major challenge for micro business owners. More than a third (37%) of survey respondents in CFED’s study cited cash flow as their biggest challenge.