Starting and sustaining a small business has never been easy. And without access to financing and working capital, it’s all but impossible. Businesses large and small, young and old, need access to cash and credit to fund operations, build inventories and bridge the gaps between billing and payments. Yet for too many entrepreneurs, the ability to borrow money to fund their operations is becoming increasingly difficult.

Cash flow is a primary root cause of small business failures, and research shows that more small businesses have been failing each year than are being started. It’s a problem that demands immediate attention from both policymakers and the financial industry.

For its part, Congress recently increased the Small Business Administration’s loan cap from $18.75 billion to $23.5 billion, a move that ensured continued availability of funding. We applaud this much-needed, bipartisan action in the House and the Senate to maintain a vital source of funding for small enterprises. But the reality is that government cannot be the sole source, or even the primary source, of small business capital.

While family members and third-party investors play an important role, the fact is most small businesses still rely on the commercial marketplace for the bulk of their borrowing. However, traditional lenders are no longer adequately meeting that need. Our research found that since 2008, the total number of small business loans funded by traditional banks dropped by 20 percent. Only 34 percent of small businesses surveyed say they are able to get the funding to meet their needs. There are several reasons for this:

  • Increasing regulations: In the aftermath of the Great Recession, new regulations have subjected lenders to higher capital and underwriting standards. The truth is that these new rules now make it just as costly to underwrite a $50,000 small business loan as it is to underwrite one for $1 million.
  • Decreasing availability: There are fewer banks to make loans. As recently as 2011, community banks funded about 50 percent of all small business loans. Today, there are half as many community banks as there were just 25 years ago.
  • Limiting focus: Banks that do make loans typically base their decisions on the creditworthiness of the owners rather than the financial strength of the business. Intuit’s new research report, “Financing Small Business Success,” found that 83 percent of businesses with fewer than 11 employees rely on their personal credit history to apply for a business loan.

Taken together, these factors are impeding small business survival and growth. Our research revealed that about 60 percent of our small business customers are being denied the financing they need. And our small business customers spent an average of 33 hours just to complete the loan application process.

Policy and regulation need innovation if small business conditions are to change. For our part, Intuit developed QuickBooks Financing – a lending platform that helps match our small business customers with both traditional and non-traditional lenders. The offering helps participating small business owners use their existing business financial information to help streamline and automate the loan approval process.

As a result, we’ve reduced the time and expense that small businesses spend applying for a loan and made it more likely their applications will be approved. While still in its infancy, the program shows that loan applicants have a 70 percent acceptance rate, and that their loans can be funded in just one business day, compared with a process that traditionally takes weeks with a bank, and which more often end in loans being declined.

And QuickBooks Financing is just one of several innovations occurring in the marketplace. The connectivity of the Internet has enabled multiple non-bank lenders and crowd-funding sources to match individuals willing to lend with small businesses needing to borrow. The “Financing Small Business Success” report projects that online lending to small businesses will grow from an existing base of $9 billion to $83 billion by 2020.

Despite the promise, most of these emerging lenders must operate in ways never anticipated by policymakers. Even the smallest among them must comply with a patchwork of state and federal laws and regulations that make it extremely costly and complicated for them to succeed.

Times have changed. And so must our small business lending policies. Applying for a small, short-term business loan is far different than applying for a large, 30-year residential mortgage. We believe the substantial differences in the two transactions should likewise drive policy to regulate them very differently.

Like so many of the challenges we face in our new economy, progress requires regulatory oversight to work in tandem with innovations in the marketplace.

We must maintain essential consumer protections, such as transparency in pricing and repayment terms. At the same time, we must also seek greater accommodation for the emerging non-bank lenders and lending platforms that are using technology, data and the online marketplace to better meet the needs of small businesses.

Congress was correct in taking decisive action to ensure the SBA remains a reliable source of small business funding. It’s now time to continue that resolve and create a regulatory framework that can foster small business growth and survival through new and innovative sources of small business funding.

As the primary source of job formation in the economy, small business financial success and how to strengthen it should be a top priority of any bipartisan economic policy.