Merchant Cash Advance: Right for Your Business?

"Earth to the Wall Street Journal..."
When it comes to business funding, are we all living on the same planet? The question arises because today's Wall Street Journal seems to have drifted off into a world of its own. It says:

To prevent crumbling housing and credit markets from sinking the broad economy, the Bush and Obama administrations and the Federal Reserve spent, lent and invested more than $2 trillion on one initiative after another. If you owned a credit card or a money-market fund, had a savings account, bought a Dodge pickup or even a hunting rifle, or borrowed to buy a home or finance a small business, odds are good that the U.S. stood behind you or the firm that served you.

Well, yes. Maybe. If you did "borrow [to]... finance a small business", then maybe "the odds are good that the U.S. stood behind you." But what were the chances of your being able to borrow?

Small Business Loans--The Reality
Back in the real world (in Birmingham, Alabama, to be precise), people seem to have a firmer grasp on the facts. Last week, the Birmingham Business Journal ran a piece about business loans.

And, under the headline, "Small business advocates: Tight bank lending is 'dire'", it reported:

Banks are still pulling the rug from under local small businesses, even though the economy appears to be headed in a positive direction, small business advocates say.

Commercial Loans Dry Up
And the piece went on to quote Bob Dickerson, who's the executive director of the Birmingham Business Resource Center. He said: "The banks – who raked in money from the national bank bailout program – pulled lines of credit and declined to provide new lending opportunities to credit worthy businesses... The small business sector is what’s going to bring the economy back. However small businesses haven’t received anything close to a bailout. Banks’ retrench in lending has had a dire impact.”

Merchant Cash Advance Offers a Way Forward
For all too many small businesses, this lack of available credit threatens their very existence. If you're in that position, and need to find alternative sources of finance--including a merchant cash advance--try clicking here.

Merchant Cash Advances Aren't Cheap. But What Capital Is?

Loans for Business All But Disappearing from the Mainstream

Last week, this blog mentioned a CNN Money report that small business loans from mainstream banks had been cut by a billion dollars in October, 2009. But what wasn't--but should have been--said here was that the CNN piece went on to talk more about business funding:

The 22 banks that got the most help from the Treasury's bailout programs have decreased their small business lending by a collective $11.6 billion since April, when the Treasury began requiring them to file monthly reports. The banks' total lending has fallen 4.3% in that six-month period, to $257.7 billion.

So, all those tax dollars that the big banks hoovered up in bail-outs have benefited, er, the big banks--and nobody much else. No wonder small entrepreneurs can't find the business funding they need.

Merchant Cash Advance: Not for Every Business

Back in August, AdvanceMe, Inc. published a white paper entitled 'Merchant Cash Advance: Not for Every Business. Is it Right for Yours?'

AdvanceMe describes itself as 'the nation's leading provider of Merchant Cash Advances to small and mid-sized businesses' so you might expect this to be a self-serving document. And it certainly isn't beyond criticism. But it also makes some good points.

Small Business Loans Aren't Cheap Anywhere

Of course, merchant cash advances (MCAs) are expensive. But if mainstream bank loans are rarer than hens' teeth, then what's the alternative?

The AdvanceMe white paper gives a few examples of when it makes sound business sense to sign up for an MCA after your bank has turned you down, or when its loan application processing is too long-winded. Here are two:

1. Your nearest competitor goes bust, and you have the once in a lifetime chance to buy up its stock for next to nothing. Do you pass up that chance--and lose real money--because you're not prepared to pay MCA rates?
2. You own a restaurant somewhere very hot and steamy, and your air conditioner finally packs up. Do you close down while you wait for your bank's small business loans department to get its act together (or, more likely, to change its lending policies so you qualify), or do you find a lender who wants to do business with you?

Speaking of lenders who want to do business with you, you can merchant cash advance providers all over the web. Why not start here?

Merchant Cash Advances Set to Grow

Few owners of small businesses choose to take out a merchant cash advance (MCA). It's far from being the cheapest form of borrowing, and most businesspeople will have been to a bank before applying to an MCA provider.

But banks routinely turn down small and medium-sized enterprises that--just a few short years ago--they'd have been falling over themselves to lend to. And things are actually getting worse.

Just yesterday, CNN Money reported that small business loans from mainstream banks are rarer than ever. Indeed, the major banks actually cut their lending to small businesses by a billion dollars in October, 2009.

The White House press office reports that President Obama met a dozen CEOs of major banks Monday, and urged them to provide the business funding that SMEs so desperately need. He said afterwards:

So my main message in today's meeting was very simple: that America's banks received extraordinary assistance from American taxpayers to rebuild their industry -- and now that they're back on their feet, we expect an extraordinary commitment from them to help rebuild our economy.

That starts with finding ways to help creditworthy small and medium-size businesses get the loans that they need to open their doors, grow their operations, and create new jobs. This is something I hear about from business owners and entrepreneurs across America -- that despite their best efforts, they're unable to get loans. At the same time, I've been hearing from bankers that they're willing to lend, but face a shortage of creditworthy individuals and businesses.

Meanwhile, today's New York Times carried a highly sympathetic report about the challenges of small business cash flow.

But until banking practice catches up with public, political, and commercial sentiment, merchant cash advance providers will remain an expensive, but necessary, and welcome lifesaver for many SMEs.