Study: Small Businesses Reluctant To Take On Debt

"Taking On Too Much Debt Can Be Harmful To A Business"

Small Biz LoansWhile it’s becoming easier to obtain small-business loans, many owners are refraining from pursuing the funding, according to a just-released survey. The study from Sageworks, a financial information company, shows 77% of small-business owners have never applied for a loan.

The main reason for this – cited by 62% of respondents – is a reluctance to shoulder debt. Sageworks Chairman Brian Hamilton said such caution about pursuing capital and incurring debt is a good sign. "Taking on too much debt can be harmful to a business," Hamilton says. "Management starts worrying about how to pay back the loans, rather than how to really scale the business."

Beyond wanting to avoid debt, another 24% of small-business owners said they have not applied for loans because they felt they would not be approved, the survey found. Additionally, 12% said the cost of credit was prohibitive, while others indicated the loan process was too time-consuming to be worth it.

When it came to financing their operations, nearly 60% of survey respondents said they used personal savings to start their business. Another 30% didn't need funding and 10.5% received capital from friends or family, the survey found. Meanwhile, a little more than 19% of those surveyed relied on a loan or credit line.