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Business owners and the tight capital market

Brian A.  Trzcinski

Posted on April 05, 2023

MassMutual specialist in business market development.
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Note that the credit environment for small businesses has tightened.

Review six areas lenders examine when considering a loan to a business owner.

Suggest sources of alternative lending that a business owner or entrepreneur may want to investigate.

It’s been a tough few years for business owners — first the pandemic, supply chain issues, and workforce shortages … and now inflation, rising interest rates, and an unsettled banking landscape. Banks and investment markets hate uncertainty, and the current economic direction is certainly uncertain.

Until we really understand where the economy is heading, it may be harder for small businesses to access capital the way in which they have in the past. Lenders tend to be cautious when there’s external factors out of their control, so now more than ever its crucial for you to position yourself as a sound lending candidate should you need access to cash.

Establishing good banking and credit relationships is critical for survival and growth. Personal savings is often the most common source of business financing, but often times it’s not enough. In fact, according to a Lendio poll, one in three owners will rely on bank loans and/or lines of credit at some point in time to infuse capital into their businesses.

The 6 C’s of lending

When reviewing loan applications lenders look for good credit, a feasible business plan, adequate owner equity, and sufficient collateral.

Perhaps even more importantly, they look for management expertise and commitment — what real work experience do you and your ownership partners have in managing your type of business.

As a rule of thumb, these six Cs of credit will help determine if you are a good candidate for a business loan.

· Character: What is your personal lending history.

· Capacity: How soon can you pay the debt off.

· Capital: How much have you personally invested and how much cash is in the business.

· Collateral: What assets can you pledge to as a backup.

· Conditions: What loan terms are you looking for and what’s the purpose for the loan.

· Cash flow: Where will the money to repay the loan come from.

Keep in mind, lenders won’t finance 100 percent of your business. They want owners to contribute at least 25 percent of the capital and want to see cash flow equal to 1.3x the debt.

Also, start with your smaller, local banks when looking to obtain loans. They typically have a higher application approval rate than the “big banks.”

The impact of rising interest rates

Rising interest rates have made the cost of acquiring capital more expensive. If you don’t have access to affordable capital financing, you may need to reduce your capital needs until credit loosens up again.

Or … you can look at alternative means of financing, which is any method through which a business owner can acquire capital without the assistance of traditional banks.

These options include:

· Community development financial institutions: Nonprofits that typically assist microbusinesses and startups with access to capital.

· Venture capitalists: An outside entity that provides capital in exchange for an ownership stake based on the company’s value.

· Partner financing: A strategic player in your industry that provides capital in exchange for access to a particular product, service, or distribution.

· Convertible debt: When a business borrows money from an investor and the collective agreement is to convert the debt to equity in the future.

Understanding the pros and cons of all of your capital financing options can go a long way towards providing your business with much needed capital during uncertain economic times.


Owners have options when it comes to infusing capital into their businesses, but creating sound lending relationship starts with both you and your business. No matter what source you use, traditional or non-traditional, you need to take steps to show you are a good “risk” for the capital provider.

Discover more from MassMutual …

7 sales and marketing ideas to help strengthen your business

Business owners: Gauging your exit readiness

Tips to recession-proof your business


The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.