You don't have to say you're the "Airbnb meets Uber of …" to get your good business idea funded.
Credit, not venture equity, is the most important form of capital for most entrepreneurs. Ninety-nine percent of small businesses will never have access to VC equity, said Rohit Arora, CEO of Biz2Credit, a New York City-based online platform that matches small-business borrowers and lenders. For many start-ups, VC money wouldn't even make sense. "There are millions of start-ups and a few thousand that get venture capital," Arora said.
But there is a select
list of cities around the United States where access to credit is among
the country's best, and that can be a difference maker for
entrepreneurs looking to fund a new business or take their current
business to the next level.
Credit, not venture equity, is the most important form of capital for most entrepreneurs. Ninety-nine percent of small businesses will never have access to VC equity, said Rohit Arora, CEO of Biz2Credit, a New York City-based online platform that matches small-business borrowers and lenders. For many start-ups, VC money wouldn't even make sense. "There are millions of start-ups and a few thousand that get venture capital," Arora said.
To compile this exclusive CNBC ranking,
Biz2Credit reviewed 261 metro areas across America to find the top 25
when it comes to accessing credit (the ranking is based on the total
dollar value of business loan applications approved, not solely the
number of individual applications).
Even when it comes to debt, Silicon Valley came out on top. The San Jose-Sunnyvale-Santa Clara, California, region — home to firms such as Google and Facebook and famous venture capital firms like Andreessen Horowitz and Khosla Ventures — tops the list of CNBC's top 25 metro areas for access to credit.
Here's where it gets interesting. After the obvious Silicon Valley pole position, other regions that scored high on access to credit were Orlando-Kissimmee-Sanford, Florida, in second place; Indianapolis-Carmel-Anderson, Indiana, and Philadelphia-Camden, New Jersey and Wilmington, Delaware, tied for third place; and Houston-The Woodlands-Sugar Land, Texas, in fourth place.
Even when it comes to debt, Silicon Valley came out on top. The San Jose-Sunnyvale-Santa Clara, California, region — home to firms such as Google and Facebook and famous venture capital firms like Andreessen Horowitz and Khosla Ventures — tops the list of CNBC's top 25 metro areas for access to credit.
Here's where it gets interesting. After the obvious Silicon Valley pole position, other regions that scored high on access to credit were Orlando-Kissimmee-Sanford, Florida, in second place; Indianapolis-Carmel-Anderson, Indiana, and Philadelphia-Camden, New Jersey and Wilmington, Delaware, tied for third place; and Houston-The Woodlands-Sugar Land, Texas, in fourth place.
The 25 best metro areas for access to credit
Source: Biz2Credit
Since the recession, many small-business
owners have found banks less willing to lend; some have turned to other
sources, such as private investors known as angels, and alternative
financing. But for small business, getting loans approved is a big deal.
"Banks have kind of retrenched," said Rocco Totino, partner in the New York City office of the accounting firm Grassi & Co. "Small business seems to be a little bit more vulnerable to the lack of access to capital. They need it to grow the existing business, to expand into other areas and to pay expenses during periods of growth and of slowdown. They also need it to purchase inventory and replace equipment."
Even when banks are lending, not all business owners qualify for a loan. "There are dozens of new alternative lenders popping up, but at the end of the day, credit still holds most of them back," said Levi King, co-founder and CEO of Nav, a website based in San Mateo, California, that helps small-business owners improve their credit and matches them with loans.
"All of the capital in the world can be available, but if you are not qualified for it, you are not going to get your hands on it," said King.
"Banks have kind of retrenched," said Rocco Totino, partner in the New York City office of the accounting firm Grassi & Co. "Small business seems to be a little bit more vulnerable to the lack of access to capital. They need it to grow the existing business, to expand into other areas and to pay expenses during periods of growth and of slowdown. They also need it to purchase inventory and replace equipment."
Even when banks are lending, not all business owners qualify for a loan. "There are dozens of new alternative lenders popping up, but at the end of the day, credit still holds most of them back," said Levi King, co-founder and CEO of Nav, a website based in San Mateo, California, that helps small-business owners improve their credit and matches them with loans.
"All of the capital in the world can be available, but if you are not qualified for it, you are not going to get your hands on it," said King.
Totino said banks now require a great deal
more collateral and frequent financial reporting for small-business
owners. Banks used to require annual updates on borrowers'
debt-to-equity ratio; some now ask for data quarterly or every six
months, he said.
Why these cities are business-loan hubs
Arora said it's not just the tech effect
that helped the Silicon Valley area land the top spot when it comes to
credit access. The region is part of the largest state in the country,
with the healthy economy creating a strong foundation for access to
capital. "There are many federal contracts that have gone to companies
in that area," he said.
Access to capital in the Orlando area, specifically, benefits from Florida's business-friendly, low-cost environment, according to Arora.
In Indianapolis, businesses in the thriving logistics and transportation industry have healthy access to capital, contributing to the region's high ranking on the list. "It was not really impacted by the recession as deeply as other parts of the country," Arora said.
At the same time, money has been flowing to entrepreneurs in Philadelphia and the Wilmington area as a result of the rejuvenation of the city's downtown and growth of the state's oil industry. It doesn't hurt that Wilmington has a strong financial services industry, as well. "It's a very unique combination of old-school and new-school industries," Arora said.
Meanwhile, Houston has become more of an IT hub, which has led to an influx of capital into local start-ups. "Houston has old money, oil money. … A lot of its companies — even oil companies — are investing a lot more in technology," Arora said.
Access to capital in the Orlando area, specifically, benefits from Florida's business-friendly, low-cost environment, according to Arora.
In Indianapolis, businesses in the thriving logistics and transportation industry have healthy access to capital, contributing to the region's high ranking on the list. "It was not really impacted by the recession as deeply as other parts of the country," Arora said.
At the same time, money has been flowing to entrepreneurs in Philadelphia and the Wilmington area as a result of the rejuvenation of the city's downtown and growth of the state's oil industry. It doesn't hurt that Wilmington has a strong financial services industry, as well. "It's a very unique combination of old-school and new-school industries," Arora said.
Meanwhile, Houston has become more of an IT hub, which has led to an influx of capital into local start-ups. "Houston has old money, oil money. … A lot of its companies — even oil companies — are investing a lot more in technology," Arora said.
