Business Loans: 2008 Spiral Leads to 2009 Promise

There’s little doubt that 2008 had small business owners and investor scratching their heads and wondering what’s on the horizon. With a discouraging 30 percent decline over the course of a rock year, the federal government and the Small Business Administration SBA locked horns over a new direction. Fortunately for us, the SBA won a small, albeit crucial win to salvage business loans for up-and-comers.

A Year that will Live in Infamy
After five years of record loan volume, uncertainty among banks and entrepreneurs has dramatically reduced demand for small business loans. The destructive mix of tightening credit by lenders, declining creditworthiness and a reduction in borrowing has had a damaging effect on the industry as a whole. Here are some of the lowlights according to NuWire:

• Dropping Vital Signs. The loan dollar amount fell from $14.3 billion in 2007 to $12.7 billion 2008; that’s close to 11 percent
• 7(a) Guaranteed, Not So. Loans that are typically given to new franchise and small business owners fell from 99,606 in 2007 to 69,434 for 2008

Business Loans See Reprieve on Horizon
It’s almost unbelievable that the federal government would vote to decrease funding and assistance for small businesses. Despite the fact that small businesses create more than two-thirds of all new jobs, the Bush administration decided to eliminate several key business loans and other programs (most notably microloans and the Microloan Technical Assistance.

According to Evan Carmichael, the SBA and Senator John Kerry's Small Business & Entrepreneurship Committee saved a number of programs aimed at Small Business Development Centers, Women's Business Centers, veterans outreach programs, and technical assistance programs.

Also, keep in mind that there are alternatives out there for small business owners. For example, funding sources such as merchant cash advances can be a godsend for struggling entrepreneurs.

Merchant Cash Advance: Trends that Validate a Viable Source of Funds

Business media coverage of the merchant cash advance (MCA) funding option has reached a fevered pitch. Owners of small to medium-sized businesses are finding this form of financing particularly amicable in the face of economic uncertainty. Here’s why.

In the Numbers
Perhaps the best way to judge whether or not the merchant cash advance is right for your business is to look at it from the other side. A quick glance at performance highlights from the MCA industry is rather illuminating. Here are a few gold stars:

• Explosive Growth. $545 billion in terms of loans outstanding at year-end 2007--factoring volume grew to $135 billion, a 6.5% increase over 2006.
• Top Industries. Retailing, steel, textile and apparel, and food leads all industries use of merchant cash advance funding
• Strong for Business. For all factors, the majority of factoring volume in 2007 involved client-to-retail sales.

How It Works
A merchant cash advance is not a traditional loan. In fact, money is not being lent at all. An MCA, or factoring, financer will purchase a portion of your future sales receipts. Money is sent directly to your business checking account, usually within 96 hours; you can use it for such expenses as expansion, advertising, payroll, remodeling, inventory, new equipment or unforeseen emergencies.

The arrangement particularly suits seasonal businesses that experience an ebb and flow of annual business. And it’s ideal for companies with poor credit, as the transaction doesn’t show up as a debt on credit reports.

Unsecured Business Loans: A Variety of Types for Specialized Circumstances

If you’re considering taking on an unsecured business loan to launch a start-up or expand your market reach, you should know that there are several different kinds available. Each has its own purpose and features to meet various needs. Here’s a rundown of some unsecured loans and how they’ll affect your purchasing power and repayment schedule.

Unsecured business loans are a form of debt financing. And while they’ve gotten a bad rap with small business owners--with comparatively high APRs and acquisition difficulty--there’s still no reason to write them off as unusable. With some management savvy, they can be an effective way to draw venture capital funding.

• Unsecured Business Installment Loan. A loan designed for expansion. There’s very few limitations on how the funds can be used, in most cases. Small business owners love the flexibility these loans carry. The APR can be a bit higher, but the ability to use them as you see fit more than makes up for the expense.
• Unsecured Bank Overdraft Loan. This one is primarily used as a “safety net” for daily operating expenses. Banks will review your business credit worthiness periodically and extend an offer of coverage. You have the opportunity to minimize your interest expense with funds used for a short period of time.

It’s important to note that banks and lenders assign varying degrees of terms and stipulations with each loan type, so read before you sign. Or you can ask your financial advisor which loan will best work in your favor and go from there.

Loans for Business: Secured versus Unsecured

There are two basic routes for obtaining loans for business: personal unsecured and collateral secured. Both are marked by stark contrasts in what is expected from you with respect to repayment. They’re both valid ways to obtain business cash, but you need make the decision based on your financial situation. Here’s a quick rundown of both types of venture capital funding.

Personal Unsecured Business Loans
As the name implies, you will be borrowing money without the backing of personal collateral (hence, unsecured). Your lender is giving you money based on your personal credit worthiness and ability to repay. Here are the highlights:

• No Collateral, Higher Price. Unsecured loans are more expensive, bottom line. Because you’re not putting up any personal collateral, the down payment, APR, and monthly repayment will be much higher.
• Intense Scrutiny. Your lender will examine your financial situation with a microscope to determine if you’re eligible. In many cases, you’ll need a sterling track record for handling credit to obtain an unsecured loan.

Collateral Secured Business Loans
Easier to get, but easier to get burned--particularly if you’ve put up something like your house as collateral. Many lenders are quicker to extend this type of loan simply because it poses a decreased risk for them. What to know:

• Here Today, Gone Tomorrow. Lenders can repossess any collateral that you put up to obtain financing. And they’ll do it if you don’t meet the terms.
• Friendlier Terms. Down payment, APR, and monthly payments are much lower with this type of loan.

Small Business Loans That Can Take a Bite Out of Your Dream

Despite the fact that it’s been the year of the credit crunch, entrepreneurs and small business potentials haven’t let that stop them from pursuing the dream. Borrowers are running in droves to alternative lending sources for assistance. Unfortunately, deceptive lenders and outright fraudulent outfits have recognized desperation and are drawn to it like a shark to bait fish. Here’s how to avoid becoming their next meal.

What the BBB is Doing to Keep You Safe
The Better Business Bureau is working to identify fraudulent lenders, particularly on the Internet. You can check with their index of resources to find the names of these criminals and how they use the lure of small business loans to dupe unsuspecting borrowers. The list is updated fairly frequently and you can even report lenders to the BBB using their online form. They even offer timely advice on how small businesses and consumers can avoid fraud when seeking loans and grants.

What the BB Says About Due Diligence
Of course, the best way to approach offers for small business loans and other forms of business cash is to do your homework. Follow these simple BBB guidelines that protect you from illegitimate deals and keep you in the game.

• The Up-front Request. Never pay large sums of money upfront to receive loans or wire payment for services.
• Giving Sensitive Data. Be extremely cautious when providing bank account numbers. Review all details of any offer before making a buying decision and signing a contract.
• Go Government. Research free information on government grant programs at the U.S. government web site.

Business Cash: How to Measure It, How Much Weight to Assign to It

Business cash is the name of the game--plain and simple. Whether you're a budding start-up looking for venture capital funding or an established corporation dreaming of international expansion, business cash is king. In the face of uncertain economic twists and turns, here's a method of evaluating business cash as well as some fiscally-savvy techniques for increasing your take.

Evaluating Your Business Cash Value
According to Journal of a Serial Entrepreneur, there are three distinct measurements of your company's ability to experience growth, or even just to remain solvent.

1. Cash In-flow. Basically, the way cash enters the coffers. In order to get an accurate picture, can you notice trends, seasonal cycles or other noticeable characteristics? And if you ever have dreams of selling out, potential buyers are going to want to see your business cash stability.

2. Cash Out-flow. How your business reacts during times of feast or famine. If profits are up, do expenditures follow? And eliminating long periods of excessive out-flows will improve your business prospects.

3. Cash History. Of course, business doesn't happen in a vacuum. The historic trends of in-flows and out-flows will reveal the true picture of your business health.

How to Make Things Grow
Small Business Trends reveals some fruitful methods for accumulating business cash and getting your ship heading in the right direction. These include getting a merchant account to accept credit cards, partner with a complementary business, and study your sales patterns (such as your business cash history).

Commercial Loans: Disaster to Spike in 2009

Just when you thought the turn of the New Year would bring about relief in the commercial loans markets, think again. The evolving phenomenon of lack of credit, falling property values and reduced cash flow will only drive the situation closer to the brink. And while small businesses will fight to get off the mat, it’s these organizations with the capabilities to bring us back. Here’s more.

JPMorgan Disseminates Harrowing Statistics
If tests are any indications, the bleak financial situation is only going to get worse before it gets better. According to published research by the commercial mortgage bond research at JPMorgan, companies that specialize in troubled mortgages are being over-flooded with businesses in need. Commercial property prices may fall as much as 40 percent, with prices down 11.5 percent from October 2007.

As you might expect, that doesn’t bode well with lenders specializing in commercial loans and venture capital funding. Due to the scarcity of cash, traditional banks and credit unions are reluctant to part with funds that may very well get eaten up in a bear market. Small business loans have never been tougher to secure, even for established businesses looking to expand.

Terror in a Representative Market
A report in Pacific Business News puts the economic spotlight on Nashville, Tennessee--a standard market that is pretty much a mirror to most section of the United States. Here’s what they found.

• Construction loans account for 4.5 percent of national bank assets. That number is 13 percent at Tennessee-based banks. It’s even higher in Nashville at 15 percent.
• Commercial real estate loans represent 7 percent of assets nationwide, compared to 14 percent at Tennessee banks.
• Tennessee banks have already written off $464 million in bad loans in 2008, with more expected.
  

Loans for Business: The SBAs Community Express Loan

At first, the concept was promising. The Small Business Administration’s new Community Express loan program. Loans were aimed at minority-, women- and veteran-owned small businesses in low- and middle-income areas. Fast to apply for, quick return of funds. But now the SBA seems to be singing a different tune: The benefactors are appearing to be small-business owners who are seeking less than $25,000.

A Case of Loan Profiling?
The Wall Street Journal lists several instances where seemingly perfect candidates for the SBA’s Community Express Loan have been shut out by local lenders in what appears to be applicant profiling.

• Loan Caps. The largest lenders have a cap of 100 loans a month, while others are limited to 10 a month.
• Restrictions. The SBA requires applicants to provide a business plan and says it is strictly enforcing the requirement.
• Potential Problems. Community Express has had high default rates and high overall expenses.
  

What the SBA Says
The Small Business Administration web page on the Community Express loan program itemizes changes that went into effect on October 1, 2008. It describes the program as one “which has been redesigned to better focus SBA’s financial and technical assistance resources on the needs of the Nation’s underserved communities.”

• Maximum Loan Amount. $250,000
• Interest Rate. Lenders may charge up to Prime plus 2.25% for maturities under seven years and Prime plus 2.75% for maturities of seven years or more.
• Turn Time. Mostly within 36 hours.

Restaurant Financing: Acquiring Special Purpose Loans Tough, But It Can Be Done

The law of supply and demand has more of an influence on obtaining restaurant financing than you might think. The truth is that wealthy restaurant goers are experiencing the brunt of an economic downturn just like the rest of us. And this phenomenon is making it harder than ever to secure restaurant financing. But the SBA is taking some positive steps to unclog the process and help you get special purpose business cash.

Even the Wealthy Foreclose
Reuters recently described the plight of the wealthy as they struggle to make house payments and avoid foreclosure. Says Reuters: ‘Along with their less moneyed fellow citizens during the housing boom, many wealthy Americans leveraged their home equity to buy anything from a car to stocks.’ Of course, another unfortunate side effect is that fewer people are dining out--a point not lost on business cash lenders.

Obtaining restaurant financing was difficult in the first place. But as more banks raise their standards and ask more profit-related questions, the process has gotten even stingier.

The SBA Tries to Shake Loose
The Small Business Administration recognizes that venture capital funding must be made available if the economy is ever to return to its normal functioning. To that end, the SBA has made two distinct changes in applying for business cash that will make a real difference over the long haul.

1. An interim final rule allowing new SBA loans to be made with an alternative base interest rate, the one month LIBOR rate (London Interbank Offered Rate), in addition to the prime rate, which was previously allowed. This move makes programs more flexible, increases opportunities to access capital and gives both lending partners and small business customers more options to meet their needs

2. A new structure for assembling SBA loans into pools for sale in the secondary market. The enhanced flexibility in loan pool structures can help affect profitability and liquidity in the secondary market for SBA guaranteed loans

Don't Confuse Merchant Cash Advances with Payday Loans

With the credit crisis reaching critical mass, traditional lending sources are raising the bar and tightening the purse strings. And despite the Feds revealing that they may create a collection of loans with insanely low rates, private banks are reluctant to follow suit. The merchant cash advance has emerged as a promising avenue for business owners looking for venture capital funding. Some dismiss the notion as “another payday loan.” But an MCA is far from it.

Payday Loans are for Suckers
Even the seniors know it. An article from the American Association of Retired Persons (AARP) sums it up quite nicely: “A payday loan costs at least ten times as much as a small loan from a traditional bank. You may end up paying an APR of 300%, 400% or even 1,000%.” And depending on how much business cash it will take to get your start-up up and running, you could easily be talking tens of thousands of dollars in interest alone.

If your business relies on invoice payments or accounts receivables as a part of cash flow, there’s a better solution. Particularly if your high-dollar customers take 60 or 90 days to pay.

Merchant Cash Advance: Sell--Don’t Borrow
Remove the traditional banks from the equation. Forget the payday loan. You can sell your future invoices for cash right now and not pay a cent in interest. Let a factoring company become the medium between you and your customers, leaving you with immediate cash to expand.

Eyeing the Merchant Cash Advance from Another Perspective

As most savvy small business owners already know, the key to doing good deals is to look at the exchange from both sides of the table. Understanding what the other guy is trying to get will give you key insights into how the deal will affect you both. Case in point--the merchant cash advance. This form of venture capital funding is not relatively new, but many invoice-driven start-ups are reluctant to test the waters. Let's look at it from the MCA purchaser side.

How They See You
AdvanceMe,Inc.'s white paper on responsible MCA arrangements sheds a great deal of light on how merchant cash advance operations view potential business partners. Their number one concern is risk management (same as yours). And they determine the risk your business poses through 'credit card sales volumes, gross volumes, time in business, SIC codes, business information, references and credit reports'. What can you learn? Having these statistics ready when you come to the table will streamline the process and show the potential purchaser that you know what is expected of your business.

MCAs are also interested in protecting you from over-selling your invoices, eventually leading to a potential shortage of cash. They know your margins and won't buy more than you’re capable of bringing in. Another important point--merchant cash advance parties that you can trust won't allow you to overextend yourself.

How You See the Deal
The Green Sheet's article on merchant cash advances highlights the growing interest that PO purchase organizations are drawing now that traditional lending sources have become stringent. Says The Green Sheet: 'Unlike a loan with a fixed rate of interest, amount due and set due date each month, with credit card advances the money is paid back as credit card receivables come in.' This is especially helpful for business that experience seasonal cash flow issues, where the ebb and flow of profits can control the amount of money repaid.

Business Loans Demystified: The SBA and an FAQ

The Small Business Administration seems to be shooting itself in the foot with respect to its 8(a) business loans programs. Due to the agencies own limitations, many small business hopefuls don't even know about the program. Those that are aware of it really don't understand how the program will benefit their situation. And that's a shame because the program itself could be a lucrative source of venture capital funding.

The SBA Could Do It Better
According to Sharon McLoone, small business writer for the Washington Post, the SBA's 8(a) Loan program has a good heart but terrible communication abilities. The program was designed to help small firms gain access to federal contracting opportunities. In fact, the federal government is supposed to appropriate 23% of its total contract dollars to small businesses, a goal they have yet to achieve.

Some of the issues that have been identified as challenges with 8(a) include:

• A general lack of understanding about the program's purpose and requirements
• An SBA staff with the diminished ability to conduct business development activities
• An inefficient process of terminating firms
• A lack of routine program surveillance reviews

How to Borrow from the SBA
The Small Business Association is still a solid option for garnering the capital funding you need to get your business off the ground. Here's how to get the ball rolling with the SBA.

Documentation. Purpose of the loan, history of the business, financial statements for three years, schedule of term debts, aging of accounts receivable and payable, projected opening-day balance sheet, lease details, amount of investment in the business by the owners, projections of income, expenses and cash flow, signed personal financial statements and personal resumes.

Submit. All materials to a local lender first. If they’re unable to extend a commercial loan offer, ask if they can pass your information to the SBA under the loan guaranty program. This will meet your needs up to about 85% of your original request.

The Merchant Funding Chronicles: From Start-up to Profit

New Internet companies break every day. The global reach of the Web can literally transform a passive idea into passive income in matter of weeks. But entrepreneurs get muddled at the start with some key concerns. When should I create a business identity? Where will I get the merchant funding to get my concept off of the ground? Those that don't answer these challenges are just surfing. Those that do become tomorrow's cyber elite. Here are some ideas to help you hurdle.

To Be, Or Not To Be...A Registered Business
According to Los Angeles-based entrepreneurship and small-business writer Karen E. Klein, operating a business with the intention of making a profit is the primary definition of whether you are running a business or a hobby. The IRS will use this definition to determine whether you can legally deduct business expenses for tax purposes. For those whose efforts are turning a profit, the next logical step is to obtain merchant funding and expand.

It's also the point where you'll want to start keeping your personal and business accounts separate. It's always a good idea not to co-mingle funds. That means a new bank account, credit cards, and books for your business. Reminds Klein: 'As a sole proprietor, you wouldn't be operating illegally if you kept your personal and business funds together, but why start your company off on the wrong foot?'

Merchant Funding Sources: Traditional and Alternative
Small business owners are expanding their minds with respect to business funding. They're examining a variety of merchant funding sources and partnerships in order to give their businesses the best start possible. Christine Comaford, CEO of business accelerator Mighty Ventures, rattles off a list of small business funding opportunities that you will want to consider.

• Bank and SBA Loans
• Personal Loans
• Unsecured Loans
• Micro-Loans
• Merchant Cash Advances
• Asset-Based Lending
• Equipment-Lease Lines
• Venture Capital
• Angel Investment
• Government Grants

When Unsecured Business Loans Go Bad: Grabbing the Life Vest

A whirlwind economy and hesitant consumers have combined to form one of the worst retail seasons in recent memory. Those small business owners who are struggling with their unsecured business loans are facing a stark decision: close their doors or work with a business debt counselor to right the ship. Here are some things that Buzzle suggests you can do to keep your unsecured business loans in check.

1. Finding A Commercial Debt Professional. As easy as scanning the newspapers or searching the Internet. Many professional debt relief companies have connections witht he major search engines and will appear without much looking. Checking with your local Chamber of Commerce is another great way to find a reputable outfit.

2. Getting Your 'Stuff' Together. The process of dealing with your unsecured business loans is trying enough. Don't lengthen the time by showing up to your appointment without the necessary documentation. That means having all loan information, business reports and asset information.

3. Know What Can Be Reorganized. According to Buzzle, not withstanding interest in real property or belongings, 'nearly every other kind of financial obligation is the result of unsecured business loans such as those regarding credit cards, electricity and heat bills, and supplier's bills can be subject to the debt reorganization process'.

4. Be ready to Negotiate. Your debt relief professional with work with your creditors to arrive at the most favorable repayment terms of your unsecured business loans. Even if these accounts are seriously over due, have gone into collection or have already resulted in creditor obtained judgments against you and your company, you are entitled to negotiations to keep your business, and yourself, solvent.

Dissecting the Merchant Cash Advance: Is it Viable? Is It Valid?

Accounts receivable- and invoice-heavy businesses will, at one point in time or another, be faced with the decision: merchant cash advance or not? Do I sell my shares of future profits for the immediate capital funding I need to expand my product line, to enter new markets, or to grow my sales force? There are positives and negatives with the merchant cash advance that should be considered for every business entity and model.

Are Merchant Cash Advances Viable?
A Reuters article aptly captures the attitude of many business owners considering a merchant cash advance partnership: 'The practice can be a lifeline for a small business to cover their costs in the near-term. But the trend is making some who watch over the health of small businesses in their communities nervous.' Why nervous? Perhaps the main reason is that, as traditional lenders are tightening their belts, the flood of small business owners to alternative commercial funding sources is offsetting the natural balance. However, those in the cash advance business see the shift as a natural flood of clients to an ingenious lending model.

Are Merchant cash Advances Valid?
As you might expect, federal, state and local regulations are quick to define the proper merchant cash advance transaction. Particularly as it compares to a commercial loan. Says Transaction Trend: 'Whether a cash advance is a loan or a sale depends on the intentions of the parties. The fact that the signed agreement says the transaction is a sale is irrelevant in most states. In order to be a purchase and sale transaction, the cash advance provider must assume some risk other than the typical risk in a loan transaction (risk of non-payment) and must treat the transaction as a sale."

Examine your proposed merchant cash advance. Are the terms and conditions in line with the law and your company's ability to repay? Answering these two questions will go a long way in ensuring your business loan positively impacts your business.

Timid Commercial Loans Send Small Business Owners to Local Banks

Despite the fact the economic times are slowly righting themselves, business owners are finding lending institutions with tight purse strings. In fact, CNN Money points out a deciding fourth quarter to be played out before we see and real relief. However, Ocala reports that small business owners are having a much better time securing commercial loans from local area banks. It seems as thought one needs the other more now than ever.

Commercial Loans in Stormy Weather
It seems as though the Federal Reserve is just about the only gung-ho lender in a skittish market, big businesses and banks are quickly finding out. Despite the fact that several key indicators are pointing in the right direction, few other sources for venture capital funding are following the Feds lead.

And it doesn't look as if the uneasiness to lend to big business will abate any time soon. According to CNN Money, 'The fourth quarter is the most critical period for lending, as financial institutions are hesitant to lend with the risk of taking a hit to their balance sheets at the end of the year'. No doubt that the New Year will spin off the way markets perform late in 2008.

Small Business Owners Think, and Borrow, Locally
The good news is that small business owners and local community banks are striking up some beneficial relationships out of the spotlight of private companies and multi-million dollar funding requests. A drop in the request for commercial loans means potentially good opportunities for small businesses.

According to Ocala, 'The problem is, in a down economy, fewer businesses are a good risk and fewer businesses are looking for loans. For those that are, the lack of competition for loans provides an opportunity for a good deal on rates'. And this bodes well with small business owners looking for commercial loans that they, and their business, can live with.

The Toa of Business Cash: Growth-minded Practices that Make a Difference

With all of the recent talk about how tough it is to get business funding, sometimes we forget that it’s not impossible. Small businesses are finding alternative ways to get the start-up or growth capital they need to gain some momentum. And it’s what you do after you get financing that determines the direction of your business. This fact is not lost on PowerHomeBiz. They offer some key advice on making your business cash go farther.

Collect Your Payments Promptly

That means streamlining your ordering process to include all forms of payment: credit and debit cards, e-mail and fax orders, e-checks, and established third-party processors such as PayPal. Send out invoices timely and apply penalties to late accounts.

Deposit Your Payments Promptly

Checks should be deposited same day, without exception. And become an expert in your banks small business cash processes. You should know exactly how long the lag time is between a deposit and available funds.

Make Accounts Receivable Rigid

This means profiling potential customers for credit and payment history, past references, and their reputation with financial rating services (think Dun & Bradstreet). Offer cash discounts and follow-up late invoices with phone calls and e-mail letters.

Don’t Pay Too Early

This is the opposite of your collections policy. Don’t pay your bills until the latest possible moment in order to keep operating cash in your account where it will do you some good. Using business credit cards for purchases typically sets payments on a 45-day schedule.

PowerHomeBiz goes into much more detail, but the golden thread is the same. Sound business cash management practices are solid ways to increase the fiscal capabilities of your small business.

Loans for Business: Alternative Lenders Flourish in the Credit Fallout

The looming recession is gutting a once flourishing economy, and industries across the board are feeling the squeeze. Traditional banks are clamoring for repayment and threatening to eat themselves up. But according to FastUpFront, lenders that include risky, high-interest payday loans to invoice factoring, equipment leasing, and business cash advance groups are seeing a feeding frenzy.

Loans for Business with Acceptable Terms Are Scarce
TradingMarkets reports that business of every size and from every industry ‘are being hurt by a national credit crisis that has frozen lending at many banks, particularly those that were in the subprime lending market or held sizable mortgage-backed securities’. Businesses looking to make a mark in the market, expand to new markets, or just remain solvent are finding it difficult to acquire the capital to do anything.

So instead of relying on shaky credit or the promise of big sales numbers in the coming year, business are looking at their assets to create a strategy for acquiring operating capital.

Venture Capital Funding Can Be Asset-driven
One thing that small business owners are finding out is that other assets can be leveraged to find much needed liquid capital. For example, businesses that rely on invoices, accounts receivable, and other PO-based operations can enter into a factoring agreement that will generate up to 90% of the proposed asset. That’s money that can be put to use today and money that won’t come from a traditional bank any time soon.

Accounts receivable factoring is gaining momentum in the US and UK. As competition enters the market, percentages will inevitably go down and service will rise in kind.

Merchant Funding and ‘The Ripple Effect’

According to MSNBC, the collapsing columns of the country’s financial edifice will cause damage much further outside of the property lines than first expected. In fact, if businesses can’t borrow any more money to remain solvent, we’re going to see shockwaves that rattle even those with an exemplary borrowing record. The perfect storm? Perhaps. But unlike the weather, this forecast doesn’t appear to be improving any time soon.

Just Like Dance Steps in a Waltz of Doom
First, jobs will be cut. Then, companies will stop investing in each other. Finally, a surge of defaulting loans will send companies in a downward spiral. And the banks are no help. Instead of supporting the economy in a time of need, they’re turning on themselves by the boatload.

Some remarkable catalysts include:

• The Sept. 7 takeover of mortgage giants Fannie Mae and Freddie Mac, which were able to sell $12.8 billion in debt in September.
• Total nonfinancial investment-grade corporate debt issuance was only $10.5 billion in September, down from $41 billion a year earlier.
• President Bush signed into law Friday a historic $700 billion bailout of the financial

Merchant Funding Sources See Opportunity
The Denver Business Journal paints a much brighter picture. Despite the fact that ‘65% of U.S. banks said they had tightened their lending standards on commercial and industrial loans to small companies’, alternative merchant funding companies are providing venture capital funding deals typically ranging from $5,000 to $300,000. The surge towards asset-based lending might be more expensive than traditional loans, but traditional loans are proving to be scarce.

Secured Loans Singing a Swan Song

Tighter lending criteria and higher interest rates are causing a handful of secured loan organizations to close up shop. And that should be a warning for any budding entrepreneur looking to put up their own personal collateral to secure financing for a business start-up. The cold, harsh reality is this is a dangerous proposition that could leave you blowing in the wind

Barclays Closes FIRSTPLUS Financial Group
The UK’s largest provider of secured personal loans is feeling the brunt of the credit crunch. While FirstPlus isn’t the first lender to exit the market for secured loans, it is the largest. And that is a fairly good indicator of the impending crisis. As traditional lenders have all but cut-off lending for newbies and the unestablished, it seems as though alternative lenders could be following suit. Still, potential business owners, many with stars in their eyes, are continuing to put up their own personal collateral in an effort to nab the start-up capital they need.

Collateralized Loan Obligation: Trick or Treat?
At first glance, CLOs look dangerous. According to BusinessWeek, “CLO managers essentially buy a bunch of loans arranged by banks, package them together into a pool, and then carve out different securities to sell to investors, taking a fee for their troubles.” Ironically, this process is pumping up the economy by lowering borrowing costs, attracting foreign capital and helping to keep a lid on interest rates. However, CLOs come with potential business rearrangements that could take some of the control that the owners enjoy.

Go Searching for Business Funding with Your Eyes Wide Open

As the looming credit crunch drives entrepreneurs and small business hopefuls into the arms of alternative lenders, it’s easy to get caught in the merchant funding trap. Adjusting interest rates and payment penalties can quickly get you in over your head. But if you stick to a few simple rules, you can find adequate financial support with terms that you can live with. Here’s how.


What It Takes to Get Attention
Getting a small business loan is much more complex than it used to be. Federal, state and local regulations dictate the primary requirements for applying. As a rule of thumb, you’ll need to have a two-year history of processing credit card payments for most business cash advance loans. Also, most merchant funding companies require minimum monthly credit card sales revenue that fall within a certain range.


Knowing the Merchant Funding Game
The first rule of thumb is to examine the fine print. If the terms and conditions confuse you, have a lawyer look over any document before you sign. If you’re considering a merchant cash advance, you shouldn’t be required to disclose any financial statements or put up any collateral. And an invoice factoring deal works the same way; you only need to show your earning potential, such as past invoices of accounts receivable statements.


Know Thyself
A good way to prepare for meetings with potential lenders is to know your credit score and your business history. Those are two major factors that lenders will ask about before they make you an offer. With anywhere from $25,000 to $250,000 on the line, commercial lenders want to make sure they’re lending to a fiscally responsible borrower.

The SBA Stumps for Small Business Loans

On Monday, the U.S. Small Business Administration made a plea to its participating 7(a) lenders and Certified Development: Give borrowers with small business loans an opportunity to remain solvent. And that means being flexible with terms. Here’s more on what the SBA is asking lenders to do in economic turmoil.


3-month Payment Deferments: Is It Enough?
The SBA is calling for a three-month deferment of loan payments to help free up capital needed to run businesses. The downside is that three months is a short time frame in which to work. The pending recession is already several months along, with no end in sight. So what about borrowers that need more than a three-month curtain? Says the SBA: ’If a deferment longer than three consecutive monthly payments is needed for a loan, borrowers can work directly with their lenders who in turn will work closely with the SBA to identify the best solution.’


Personal Credit, Falling Equity, and Other Factors of Concern
Other considerations highlighted by the SBAs announcement include lowered personal credit scores, plummeting real estate values, and similar economic indicators assured to be askew in a volatile market. Borrowers affected by these factors should be examined individually for the best course of action. But the question remains: In such a tumultuous market, does a best course of action truly exist?

The Small Business Commercial Loan Trends that Dominated 2007

To know the future is to study the past. And any small business owner worth their salt will pay attention to how the highlights and lowlights of small business funding from years past. Stephen Bush, Founder and Chief Executive Officer of AEX Commercial Financing Group with 25 years experience as Business Finance Advisor and Commercial Real Estate Financing Consultant, makes these critical observations concerning the best and worst business small business financing of 2007.

• The Sources have Become Scarce. There was a noticeable decline in the amount of SBA lenders in 2007. Apparently, the credit crunch and subsequent fallout has shaken loose the number of fly-by-night lenders that ‘helped’ get us into the economic situation that we all face.


• Down Payments have Become Demanding. With a the reduction in loan-to-value ratios, borrowers are finding that lenders a slightly larger down payment to close. This has been especially true if lenders are looking to get cash equity out of the business at closing.


• Lenders are Put to the Test. With respect to business cash advances and credit card processing services, the faces have changed extensively over the past year. While there are still many new and inexperienced companies attempting to operate in this complex field, some ineffective providers were forced to leave.

The Bottom Line. The ‘shake-up’ of the credit industry should eventually work in your favor. Once the laws and processes of attaining small business financing are worked out, what should result is a more stable lending environment.

Banking 2.0: Peer-to-peer Financing Options Gain Momentum

If you need any proof that a recession is in full effect, just ask the small business owners out there who are trying to get a loan. The loose lending practices of traditional banks and programs have forced them to scrutinize every potential lending scenario. Rejection is not uncommon. On the flip side, alternative lenders are seeing surge of business. And that means new categories of funding options to help you get your company off of the ground.


The Credit Crunch: Banks Tightening Their Belts
Unless you have outstanding credit and plenty of collateral, you’ll find that traditional banks and lenders are more hesitant to give you a small business loan than ever. After a decade of granting loans on stated income, it seems as though banks are trying to ‘right the ship’ by dissecting every loan application and looking for a reason not to finance. And that’s downright tough on those with the dream of business ownership.


Welcome to Lending 2.0
The upside to this situation is the growth of alternative small business funding sites that cater to those at every stage of the business process: start-up, brand establishment and expansion. Entrepreneur reports lists these popular online lenders and their average business loan amounts:

• Prosper.com - $90,000
  
• Lending Club - $15,000
  
• Virgin Money - $21,000
  

Most loans requests can be completed online, saving you a great deal of time and effort. Plus, if your business has special needs, lenders will typically connect you to an account manager that can personalize a loan to fit your needs.

Inc.com Really Misses the Point on Merchant Cash Advances

Two writers from Inc.com riff on the concept of the merchant cash advance. They cite a few examples of extreme cases of servicer abuse and some disproportionately high interest rates and fees. But what they fail to grasp is that the MCA zone works like any other area of business financing: there’s both the high and low roads

What’s Written in Inc

Inc, a top-tier online small business and entrepreneurial resource, uses its presence to turn readers on to promising new business avenues. That’s why it was surprising to read two of their readers were particularly hard on merchant cash advance route as an alternate for acquiring business funding. They were right on a couple of things. They describe the MCA industry as ‘a fast-growing and risky new product for businesses’. Fast-growing, no doubt. And it can be risky if you don’t do your homework or show restraint.


A Right Way and a Wrong Way to Do Business

Charging blindly into any financing arrangement is dangerous. Knowing APRs and payment details are critical in picking and choosing a business funding source. Same goes with a merchant cash advance. You should be comparing MCAs using their literature and other online resources. The quality organizations will present terms and conditions in an easy-to-read format. They’ll answer all of your questions plainly. And, just like any other small business funding source, there are good ones like that out there.

Restaurant Financing: Painful, But Not Impossible

Anyone who's sat across the table from a loan officer and sweated the process of applying for financing knows how tedious the process can be. And if you're hoping to start your own dreamy start-up but haven’t yet experienced the financing gamble, you’re in for a real treat.

What Banks Want
The risk/reward factor that restaurateurs offer are not as attractive to banks as they once were. A tightening economy along with an increase in supplies and food prices have combined to make the job of acquiring restaurant financing tougher than ever. If you’re in the market, expect to give up:
• A personal credit score of over 700
• Additional collateral to handle clear and free assets
• Full financial and tax disclosure

Little-Known Programs
For established chains, a merchant cash advance is one viable option. A monthly average of their Visa and MasterCard sales times 1.5% can qualify for a loan or a merchant cash advance on their past activity up to $150,000 from a financial institution and $750,000 or more per location.

Some programs use the total annual gross sales and apply a percentage against it. Plus, you’re not required to change your credit card processor. Minimum credit scores for approval start at 550. The loan can be funded up to $500,000. And tax and financial statement requirements are only needed for funds over $125,000.

For more info on up-to-date restaurant financing options, check out Restaurant Financing, Up to $750,000.

Invoice Factoring: How "Git 'Er Done" Small Biz Owners Find a Way to Git 'Er Done

Buzzle.com hit the nail on the head when it published a piece aimed at obtaining small business funding. I mean, let’s face it. Now’s not the ideal time for launching a business. Despite generous government offerings, the present state of the economy is enough to make any potential boss nervous. But there are some alternative financing opportunities that are going our way, just in the nick of time.

When You Just Have to Do It
Anyone with a brilliant idea and an entrepreneurial spirit will try to start something, no matter what the economy is doing. We figure that if we hustle enough and make the right moves, we can make it happen. And we’re right. Keeping your eyes peeled for corners you can cut, ways to make your business financing doable, is the key to being at the right place at the right time.

Invoice Factoring to the Rescue
Buzzle.com gave a robust definition of invoice factoring. Now I know good and well that a thousand investors and economists are rolling their eyes at such a ‘common’ term. But for those small-business hopefuls looking for a way to get their great idea off the ground, they need to hear this. Invoice factoring is obtaining business funding by pledging a portion of all credit card sales to the lender.

Who Can Benefit from an Invoice Factoring Relationship?
The short answer is any business that uses invoices and credit card payments to remain solvent. The alternative ‘loan’ is paid for during the natural course of doing business. And the best part is that lenders are actually actively seeking companies who’d like to fund their businesses this way. Remember the begging you did for that big-name banker who returned your heart and soul with a snooty look and a polite 'no, thank you'? Well, not anymore. Owners looking to do get small business funding through invoice factoring will probably get a big hug from everyone in the branch. You can even complete the process online, in case your not the touchy-feely type.

For more information on the business funding process from the invoice factoring perspective (as well as a handful of other little-known but widely-used small business funding options, check out Alternative Financing Options for Growing Your Business.

Ignoring the Credit Carrot: Merchant Funding Offers a New Route

In most situations, funding is the only thing keeping a great business idea from making it to the commercial world. Since banks typically only lend you money that you already have, they're the last place you want to go for start-up capital. And that's why merchant cash advances are gaining popularity as a viable funding option.

Banks Lend You Money That You Already Have
AllBusiness wrote an expose on the probability of getting funding through traditional lending means as opposed to working the merchant cash angle. With Wall Street in peril and a traditional business loan tougher to get than ever, banks have a tight string on the money purse that many small business hopefuls need to break new ground.

Says AllBusiness, ‘…when major unexpected expenses crop up or--as we're seeing today--the economy grinds to a screeching halt, owners can find themselves struggling to get their hands on the working capital they need to keep their businesses afloat.’ The bottom line? The small business loan isn’t for small businesses anymore.

Loans for Business Before the First Sale is Made
Enter the merchant cash advance. Well, the concept has actually been around for years. But due to proprietor unknowing and a general resistance against new ideas, small businesses are just now seeing the power of potential sales as a way to capture start-up capital. The major difference between a traditional bank loan and this type of arrangement is that cash advance providers buy a fixed share of a business' future credit card transactions.

The Other Side of the Coin: How Merchant Cash Advance Firms See You

Knowing What's in it for You--and Them
Many small business owners consider merchant cash advance arrangements as a primary source of funding. The promise of a percentage of credit card sales can provide starting capital for businesses as an option to other types of funding. But knowing the process means understanding the flip side of the coin: how do MCA groups determine the type of businesses they back and what are they looking for with respect to acceptable risks.

Merchant Cash Advance 101
A merchant cash advance is not a loan. Rather it's a purchase of a specified amount of card sales that have yet to occur with no fixed term. The MCA provider is entitled to receive a set percentage of its merchant client’s daily net settlement batch and is based on the merchant’s card sales volume. However, if the total credit card sales don't meet the MCA projections, the MCA providers must assume the loss with no recourse. And that means they must carefully choose the businesses that they align themsleves with through a process of selection.

How Merchant Cash Advance Providers Manage Risk

1. They Examine Your Risk Reward. This means they examine your analytics. Fiding a new provider might entice them tot ake a chance on you even if your borrowing criteria doesn't match rigid standards.
2. They Underwrite Like Crazy. You'll need to provide a list of documents verifying such characteristics as your credit history, references, and the validity of your business. Having a well-defined company mission will improve your chances of obtaining this type of business funding.
3. They Analyze, Analyze, Analyze. MCAs want to see weekly and monthly receipts as well as measure the amount of time it takes your customers to pay up. They also will check-up on your terminal activity and help you to keep your processes runnning smoothly.
4. They Keep an Eye on Faud. A robust process of checks and balances esnures that business don't take advantage of this financial arrangement.
5. They'll Know your Customer. And your industry. So that means that they have a pretty good idea about your business model and how sales numbers and profits should look at the end of the day.

Now that you know what merchant cash advance providers look for in a business partnership, you can use this information to successfully obtain the start-up capital you need to get your business idea off of the ground.

For more information on the business funding process from the merchant cash advnace side, check out Best Practices for Merchant Cash Advance Providers: Assessment of Risk - AdvanceMe, Inc.

Venture Capitalists - The Alternative to Merchant Cash Advance

Those looking to use a merchant cash advance, also look into leveraging venture capitalists. Venture capitalists are people looking to fund a company in exchange for a return with interest or a hand in the business.

The part a venture capitalist plays in your business varies. Some only want their money back with interest, while others would like to participate in the decisions and the development of your business.

The following is a list of considerations regarding venture capitalism:

First, determine if you are a good candidate for attracting venture capitalist funds. Before composing a business plan and searching for venture candidates, make sure you are not wasting your time. Analyze your core ideas and ensuing products or services.

The truth of the matter is that venture capitalists will not invest in someone that does not have an impressive history. This means you should have done something extraordinary in your industry already. If this is not the case, then you are not a good candidate to receive the funding.

The quest for finding outside funding can be daunting. It takes a great deal of diligence and energy to find potential capitalists, and even then, only a very small percentage of businesses actually receive the monies they need.

Many business owners find that receiving a merchant cash advance is a much more viable solution to their predicament. The monies allotted is based on your credit card receipts, and there is no worry about others having a hand in your business.


News in the Merchant Cash Advance industry:

Worried Banks Sharply Reduce Business Loans - The New York Times

Do Not Combine Business and Personal Accounts

A small business can get extra funds through a merchant cash advance. It is advised to keep business and personal expenses separate. The inability to do so may be disastrous for the receiver of the advance.

Here are five reasons to keep your accounts separated:

- Government rules state that only a "business" can extract funds from a business. If you are using an account for both, you are running the risk of making it hard to prove the existence of your "business."

- When tax season comes, you might have a hard time differentiating business expenses from personal expenses.

- You are not required by law to have a separate account for business, but it is required that your records are accurate. Keeping concise and accurate records ensures the absence of an audit.

- It becomes easy to miss certain deductions you are entitled to when you mix business and personal accounts.

- It looks more professional to have your own business account. Clients may not view you as a serious businessman if they must write checks to you personally rather than writing one out to your company's name.

Merchant Cash Advance Industry Forms Association

In early August, juggernauts of the merchant cash advance industry collaborated to form The North American Merchant Cash Advance Association.

Intents of the association include:

- educating members of the industry

- developing ethical standards and guidelines

- Developing services and products for the industry

NAMAA's board of directors consists of 5 people from prominent businesses in the merchant cash advance industry.

Some of the benefits associated with becoming a member are the following:

- participation in developing the industry's guidelines

- Access to the Association “MATCH” list of merchants that are not in good standing with other members

- Professional development workshops

- Exchange of 'best practice' information

Increase Advertising with a Merchant Cash Advance

Merchant Cash Advance services provide you money quickly. There are many things a business can do with additional funding such as hire more employees, buy equipment, or put money towards another location.

Customers cannot buy your goods and products if they do not know they exist. Consider using the money towards an advertising campaign. Engineer the endeavor in-house or outsource the job to an advertising agency.

Sales do not happen without recognition. Make potential customers aware of your business.

Other Merchant Cash Advance news:

How A Merchant Cash Advance Works Guide for Business Owners - Merchant Cash Advance Forums

Using a Merchant Cash Advance to Pay Your Taxes - Merchant Circle

Merchant Cash Advance as an Alternative

A small business needs capital to grow. Competition is fierce and without the proper funding to buy more inventory, conduct more marketing, and hire personnel, a smaller company's future is bleak.

Many small businesses turn to their banks to receive a small business loan. Business loans can serve as a solutions, but many bank's requirements are stringent and the process can be lengthy.

Electing to receive a Merchant Cash Advance serves as an alternative solution. Merchant cash advance services give you money in return for a future percentage of your credit card receivables. Merchant funding is a viable solution for those who do not have strong credit scores. The business funding's approval is based on a business' credit card sales rather than personal statistics.

Learn more about Merchant Cash Advance Services:

A Business Owner's Alternative to Small Loans

How to Shop for a Merchant Cash Advance

Using Merchant Cash Advance to Pay Your Taxes