Working-capital loans for today's retail businesses are increasingly challenging to come by. While there is a lot talk regarding helping "main street" within the media and politics, the the fact is that the most cost effective working capital for business is an SBA or Bank loan. Unfortunately, the restricted credit environment through which we find ourselves means a large proportion of these loans are not being approved for the retail businesses that need them most.
This leaves many retailers in the unfortunate position of going with a merchant cash advance straight from the source their credit-card processing company. These cash advances for working-capital will often be billed as "convenient" and "unsecured" ways for business owners to get "quick cash". The very fact of the matter is, most cash advance companies do secure their loans via a UCC filing against the business. While it may not be in the owners personal credit, for many small retailers, having a UCC filing against their business just isn't much different. It really is a lien that is placed on the business until the advance is repaid.
What is often left out is that cash advance businesses are not regulated through the government as loans. Consequently they are free to charge interest rates, or factor rates, of 50% or higher. Even on a short-term working capital loan, this is an amazing amount of interest. Ordinarily, because it isn't a true loan, the MCA company has the choice of changing the rate anytime through the repayment process. These advances are often characterized by high upfront fees, as well as the requirement to switch payment processors and/or buy new equipment from the provider. They also may have high "holdback" or daily payment rates that represent a real burden for many companies.
For most cases the active commercial lenders because of this specialized form of commercial funding are limiting working-capital loans to businesses which are current in their debt payments and also are showing a net profit (based on recent bank statements). If both of these conditions are met, new commercial loans can frequently be obtained to refinance lines of credit and term loans that have been cancelled or recalled by many loan companies. For businesses not qualified for commercial financing using both of these requirements, you will discover alternative funding sources such as business cash advance programs.
Many small business owners also rely on personal lines of credit to finance several of their business operations. There have been many reports of widespread cancellations and reductions of these lending programs also, especially those involving loan companies which have received a multi-billion dollar cash infusion from United States of America taxpayer money that was intended to facilitate the lending of money to businesses and consumers.
Personal and business lines of credit have been eliminated in lots of cases by lenders as a result of a reduced ability to pay by borrowers and deteriorating business conditions. As reported within the Working capital Journal, a high percentage of borrowers, on the flip side, had a fantastic payment history for many recent credit line reductions or cancellations.
Meanwhile, you will find banks ready to make working capital loans. The most notable examples are (for the most part, anyway) not banks which have received bailout funds. Generally speaking, these commercial lenders have been ready to provide working capital financing, either in the form of new business financing or refinancing lines of credit and term loans which have been recalled or cancelled by other lenders.
Because it basically indicates that bailout funds happen to be given (so far) to lenders who primarily have a history of making bad loans (practically all lenders receiving bailout funds to date), the lending activities described above are a serious concern to many observers. Currently, little attention has been given to loan companies with a healthy balance sheet in federal attempts to get additional funds in to the hands of consumers and businesses.
This leaves many retailers in the unfortunate position of going with a merchant cash advance straight from the source their credit-card processing company. These cash advances for working-capital will often be billed as "convenient" and "unsecured" ways for business owners to get "quick cash". The very fact of the matter is, most cash advance companies do secure their loans via a UCC filing against the business. While it may not be in the owners personal credit, for many small retailers, having a UCC filing against their business just isn't much different. It really is a lien that is placed on the business until the advance is repaid.
What is often left out is that cash advance businesses are not regulated through the government as loans. Consequently they are free to charge interest rates, or factor rates, of 50% or higher. Even on a short-term working capital loan, this is an amazing amount of interest. Ordinarily, because it isn't a true loan, the MCA company has the choice of changing the rate anytime through the repayment process. These advances are often characterized by high upfront fees, as well as the requirement to switch payment processors and/or buy new equipment from the provider. They also may have high "holdback" or daily payment rates that represent a real burden for many companies.
For most cases the active commercial lenders because of this specialized form of commercial funding are limiting working-capital loans to businesses which are current in their debt payments and also are showing a net profit (based on recent bank statements). If both of these conditions are met, new commercial loans can frequently be obtained to refinance lines of credit and term loans that have been cancelled or recalled by many loan companies. For businesses not qualified for commercial financing using both of these requirements, you will discover alternative funding sources such as business cash advance programs.
Many small business owners also rely on personal lines of credit to finance several of their business operations. There have been many reports of widespread cancellations and reductions of these lending programs also, especially those involving loan companies which have received a multi-billion dollar cash infusion from United States of America taxpayer money that was intended to facilitate the lending of money to businesses and consumers.
Personal and business lines of credit have been eliminated in lots of cases by lenders as a result of a reduced ability to pay by borrowers and deteriorating business conditions. As reported within the Working capital Journal, a high percentage of borrowers, on the flip side, had a fantastic payment history for many recent credit line reductions or cancellations.
Meanwhile, you will find banks ready to make working capital loans. The most notable examples are (for the most part, anyway) not banks which have received bailout funds. Generally speaking, these commercial lenders have been ready to provide working capital financing, either in the form of new business financing or refinancing lines of credit and term loans which have been recalled or cancelled by other lenders.
Because it basically indicates that bailout funds happen to be given (so far) to lenders who primarily have a history of making bad loans (practically all lenders receiving bailout funds to date), the lending activities described above are a serious concern to many observers. Currently, little attention has been given to loan companies with a healthy balance sheet in federal attempts to get additional funds in to the hands of consumers and businesses.