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.
Thursday, October 30, 2008
Monday, October 27, 2008
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.
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.
Thursday, October 23, 2008
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?
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?
Monday, October 20, 2008
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 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.
- 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.
Saturday, October 18, 2008
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:
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.
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.
Thursday, October 16, 2008
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.
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.
Monday, October 13, 2008
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.
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.
Wednesday, October 8, 2008
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.
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.
Monday, October 6, 2008
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.
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.
Thursday, October 2, 2008
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
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.
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
- 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.
- 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.
- 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.
- They Keep an Eye on Faud. A robust process of checks and balances esnures that business don't take advantage of this financial arrangement.
- 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.
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.
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