The biggest banking challenges of small businesses

Goals

This preliminary report summarizes the 5 biggest challenges that the small businesses and their banking partners have to face in the U.S. and globally.

Early Findings

Lack of cash flow

  • 82% of the small businesses fail because of cash flow issues. The owners of small business might find difficult to maintain a cash flow for recurring costs. This can be resolved by, for example, analyzing bills carefully and being accurate dealing with customers payments.
  • Cash flow can be improved by: a) reducing the amount of time to get invoices paid; b) speeding-up the business’ payment process by setting up an online payment web or accepting payments through PayPal, or Apple Pay; c) sending automatic payment reminders; d) if you have customers who pay late, incentivizing them to pay sooner, for example, offering discounts if payment is done earlier; or e) stretching out payments to your suppliers. Making sure pay off balance in full each month.

Lack of capital

  • For growing your businesses, a certain amount of capital to invest might be necessary. But acquiring funding is more difficult nowadays. A limited bank lending due to the lack of business credit of the SME sector appears to be the cause. 20% of business owners applying for funding in the last five years were denied, and most business owners do not know how to interpret their credit scores. Individuals who have a better understanding of their business credit score are more likely to be approved for a loan. That’s why it’s fundamental to have a plan for improving your business credit score.

Tax Compliance

  • Every U.S. business has to pay taxes, but being aware of deductions can truly help to reduce your tax bill. For small businesses, home office deductions are important for profits. Section 179 allows you to instantly deduct the cost of that investment. Furthermore, knowing your state’s Federal Income Tax rate is essential for minimizing its cost.

External causes

External causes such as economic instability due to unexpected factors such as COVID-19 outbreak, government regulations, or political changes might lead to a lack of support from the government. Due to the unprecedented number of business closing due to lockdowns and stay-at-home initiatives, on March 27, President Trump has signed a $2.2 trillion economic relief package, the CARES Act, to help stabilize and boost the U.S. economy during this pandemic. Other sources such as a SBA 504 loan can help if you are planning to purchase a commercial property or major equipment. The uncertainty of the economy cannot be anticipated and should be planned ahead of time to avoid unnecessary risks.

Digital transition

  • The transition to digital technology for many small businesses is also another big challenge. While offering many benefits, such as lowering barriers to access technology and capabilities, it also presents major challenges in terms of transforming internal processes and policies.

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