After taking a hit to begin the year, small-business owner confidence improved in February. However, confidence remains very low by historical standards, which could lead to a shaky couple months that may make it difficult for businesses to obtain financing from a bank.
The National Federation of Independent Business Index of Small Business Optimism increased 1.9 points in February to a mark of 90.7, up from 88.9 in January. While this improvement was a step in the right direction, it certainly doesn't represent a surge in confidence among small business owners.
According to 18 percent of small business owners, weak sales are a major issue, as just 19 percent reported higher sales, while 33 percent said sales were lower during the month. A decline in consumer spending has been a contributor to the drop in sales.
"While the Fortune 500 are enjoying record high earnings, Main Street earnings remain depressed," said NFIB chief economist Bill Dunkelberg. "Washington is manufacturing one crisis after another – the debt ceiling, the fiscal cliff and the sequester. Spreading fear and instability are certainly not a strategy to encourage investment and entrepreneurship."
With confidence among small-business owners still low, many of these companies may struggle to find the available capital or cash flow needed to receive a loan from a bank.
But businesses who are told "No" by the bank might still have options available to them. Small wholesale and retail businesses with product available may qualify for inventory financing. This form of asset-based lending allows small businesses to use their current inventory as collateral to secure a revolving line of credit.
In times like these when sales are slow and businesses may be struggling, inventory financing could provide them with the funds needed to seize new opportunities.