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.