I was meeting with another area business owner this past week, and we were discussing the things he has had to do over the past couple of years to keep his business going. It was reminder to me of what entrepreneurs have been facing in the current economic climate, and the deafening silence coming from all of our leaders about how we might be able to fix the problem. In today’s environment business owners are going to extraordinary measures to keep the doors open. They are cashing in life insurance policies, they are getting money out of their 401Ks, and working for zero pay, all in an effort to keep the business going until that turnaround comes.

I am not sure most people are truly aware of what a small business owners faces today. Small companies don’t have the luxury of being “too big to fail!” If a small company goes under in today’s climate, we all shrug it off, and say well the owner assumed the risk, if they weren’t willing to take the risk, they should have never tried to go into business for themselves. So for the small business owner there is no billion dollar bailout, or initiative to save small companies around the country. We have reached the reverse bubble, the period of irrational apathy. Those that control the capital have become so fearful of what may happen next, that they have chosen to only pursue initiatives with zero risk!

In this environment lenders only want to lend when they can have loans collateralized 100%. The high collateralization needed for new loans forces business owners to tie up capital for the bank. This creates the ultimate catch 22, you tie up your capital to get a loan, then you lose access to that cash when you need it to save your business. Although this will make the loan look great on paper for the regulators, I would argue that it places many businesses in a riskier position. It locks up their cash, at the time they need it most.

Unfortunately this problem is not going to go away quickly. Until bankers and regulators realize that the way to make money in the financial industry is to lend it, not sit on it, entrepreneurs will have to continue to operate in an environment of capital starvation. Until capital begins to flow more freely, we business owners will be forced to find new and unique ways of raising money for our businesses if we want to keep things going until the next big upswing!