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. A new study says small businesses are confused over bank loans, lines of credit, venture capital and more.

According to the OPEN from American Express Semi-Annual Monitor, 38 percent of small business owners rank growing their enterprises as the single most important priority over the next six months. Many will finance growth by reinvesting profits (46 percent), but one in five (20 percent) will take out either a bank loan or a line of credit, four percent will seek out private investors, three percent will borrow money from friends or family, and two percent 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 percent) 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 percent). Another 13 percent 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 percent) describe their biggest frustration as needing more money to grow their business but having difficulty finding the money.

The survey revealed the following:

• 46 percent believe incorrectly that banks commonly make loans to loyal customers who are in the midst of a cash flow crunch.
• 34 percent believe, again incorrectly, that a term loan and a line of credit are pretty much the same.
• 38 percent 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 percent 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. Eighty percent 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 percent also plan to place a heightened focus on better servicing customers, 70 percent plan to make investments in the business, 69 percent plan to cut expenses, 60 percent plan to cut back on personal spending, 43 percent plan to raise process and 40 percent plan to add staff.

The survey 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%.