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