Many Small Business Owners Perplexed About Financing Growth, According to OPEN from American Express 2006 Semi-Annual Monitor

Business Wire, August 15, 2006

NEW YORK -- Quiz of Owners Shows Confusion Over Bank Loans, Lines of Credit, Venture Capital; Nearly Half Think Consumer Loans Can Fund a Business

Although growing their enterprises is the top priority for small business owners, their understanding of the financial tools used to help drive business growth is at best mixed, according to the OPEN from American Express(SM) 2006 Semi-Annual Monitor.

Nearly 4 in 10 small business owners (38%) rank growing their enterprises as the single most important priority over the next six months. Many will finance growth by reinvesting profits (46%), but one in five (20%) will take out either a bank loan or a line of credit, 4% will seek out private investors, 3% will borrow money from friends or family, and 2% will use venture capital sources to fund growth.

Yet when it comes to business loans, lines of credit and other sources of financing small business owners have a lot to learn. Nearly half of small business owners (49%) incorrectly believe a consumer loan can generally be used to help fund a business. This misunderstanding is actually higher among those planning to use a bank loan or line of credit to finance growth over the next six months (61%). Another 13% did not know and couldn't answer the question. Among those business owners planning to take out a bank loan or line of credit to finance their business growth, nearly one-third (29%) describe their biggest frustration as needing more money to grow their business but having difficulty finding the money.

Similarly, large numbers of small business owners (46%) believe incorrectly that banks commonly make loans to loyal customers who are in the midst of a cash flow crunch. Just over a third (34%) believe, again incorrectly, that a term loan and a line of credit are pretty much the same, and nearly four in ten (38%) believe it's a good idea to apply to as many lenders as possible when seeking a loan. The opposite is true. There is also confusion on the part of small business owners on the availability of venture capital, only 43% think that venture capital is hardly available to small business owners.

"In speaking with small business owners, I have learned a company's first thought when it has cash flow issues may be to look for financing, but this may be the worst time to seek funds," said Susan Sobbott, president, OPEN from American Express. "Instead business owners should consider applying for a line of credit when cash flow is strong in order to have peace of mind and comfort knowing that they have funds they can tap into when cash flow issues arise."

In terms of understanding the role of credit history in securing financing, business owners scored well. More than three-quarters (80%) answered correctly that personal credit history will have an impact on their ability to find funding for their business. Seventy-two percent knew that it is true that business credit history is usually the most important factor when it comes to getting a loan for their business.

Among those business owners planning to take out a bank loan or line of credit to manage their business, 83% also plan to place a heightened focus on better servicing customers, 70% plan to make investments in the business, 69% plan to cut expenses, 60% plan to cut back on personal spending, 43% plan to raise process and 40% plan to add staff.

Survey Methodology

The small business finance quiz is part of the OPEN from American Express Semi-Annual Monitor, which is released each spring and fall. The Monitor is based on a nationally representative sample of 618 small business owners/managers of companies with fewer than 100 employees. The survey was conducted via telephone by International Communications Research (ICR) from April 4-21, 2006. The poll has a margin of error of /-3.9%.

About OPEN from American Express(SM)

OPEN(SM) is the American Express team dedicated exclusively to the success of small business owners and their companies. OPEN supports business owners with unparalleled service. With tailored products and services, the team delivers purchasing power, flexibility, control and rewards to help customers run their business. Specifically, business owner customers can leverage an enhanced set of products, tools, services and savings, including charge and credit cards, convenient access to working capital, robust online account management capabilities and savings on business services from an expanded lineup of partners. To obtain more information about OPEN, visit OPEN.com, or call 1-800-NOW-OPEN to apply for a card or loan. Terms and conditions apply.

American Express Company (www.americanexpress.com) is a leading global payments, network and travel company founded in 1850.