SBA Lending: Small Businesses Still Waiting to be “Stimulated”

It all seemed so promising…

Last year, Senator John Kerry’s Small Business and Entrepreneurship Committee managed to not only save several small business loan programs that were effectively reduced or completely nixed under the President’s proposed 2009 budget, but they also managed to secure over $100 million in additional funding. This additional funding was supposed to cover “increased loan oversight and reduced fees, microloans, contracting assistance, Small Business Development Centers, Women’s Business Centers, veterans outreach programs, and technical assistance programs…”

Over the year that followed, the SBA has heavily promoted its flagship offerings to small businesses- namely the 7(a) and 504 lending programs. And recently, it caused a stir with its America’s Recovery Capital Program, or A.R.C. Under this program, previously profitable small businesses currently experiencing financial difficulty would be given the chance to catch up on their debt. The A.R.C. loans, which can go up to $35,000, carry no fees and no interest, and are to be used to pay down existing debt. What’s more, the borrowing company does not have to begin repaying the loan until a year after it receives the final installment.

It sounded great, and many small businesses owners across the nation no doubt breathed a sigh of relief expecting that help would come their way. But the help has been slow in coming. Even with all the money and high hopes, banks both big and small and other “preferred” SBA lenders have been reluctant to offer SBA- backed loans (or any loans for that matter) to small businesses (for example, read here and here).

Even though both the SBA and the media have reported that small business lending has increased in the last few months, it is too little, too late for many of the small businesses who need this funding the most.

All disappointment, frustration, (an even anger) aside, the reality is that most small businesses would do better to abandon hopes for a government life-preserver and instead consider alternative forms of financing, such as accounts receivables factoring and merchant cash advances or tapping into the resources of friends and family to stay afloat in these difficult times.




Is Now the Time to Invest in a Franchise Opportunity?

There are several attractive incentives to investing in a franchise business. By buying into a franchise opportunity, you can take advantage of a proven business model and an established brand recognition, not to mention all the training and support that many of the major franchisers have to offer.

But with the economy in a recession, the question is should you take the franchising plunge now?

The answer really depends on the kind of franchise opportunity you are considering, as well as your available resources, your experience, and your level of commitment.


Here are a few facts to have in mind:

  • According to The Franchise Business Economic Outlook for 2009, the number of franchises will decline in 2009 by 1.2 percent, and the number of jobs in franchise businesses are expected to fall by 2.1 percent- a loss of an estimated 207,000 jobs.
  • Financing for small businesses (including franchises) is less available since banks and commercial lenders have tightened their loan requirements in response to the credit crisis.
  • Consumer confidence is holding at the lowest its been in years, which means less overall consumer spending.

 On the other hand…

  • Many franchising industry experts point to the fact that the franchising industry has emerged from previous recessions holding in a stronger position, as was the case after the recession of 2000-2001.
  • To attract entrepreneurs, many franchising companies are offering great incentive deals.
  • Start-up costs may be lower during the recession since property values have declined.

 For more information and advice on actual franchise opportunities, check out the AllBusiness Franchise Report.

The $787 Billion Recovery Package: How Can Small Businesses Benefit?

After all the politicking, President Obama finally signed into law last week the $787 billion recovery package designed to give a much needed boost to the U.S economy. Contained in the hundreds of provisions and over 1,000 pages of this bill are many opportunities for small businesses. You just need a little patience to sift through it all. To get you started I compiled a summary of a few of the provisions that may benefit many small business owners. (Both the NY Times and the Wall Street Journal have more detailed summaries of the recovery package online.)

  • Increase deduction on capital investments. Businesses can recieve a 50 percent bonus deduction on capital investments made in 2008 that would normally be depreciated over many years. Businesses can choose to accelerate refunds of research and development credits and alternative minimum tax credits in lieu of bonus depreciation.
  • Allow more small business deductions. Allow businesses to deduct up to $250,000 for capital investments made in 2009, with a total cap of $800,000. The limits were temporarily increased by Congress last year for investments made in 2008. Prior to that, small businesses could write-off $125,000 for capital expenditures, with a total cap of $500,000.
  • Delay recognition of certain cancellation of debt income. Allow some businesses to defer tax on income that is recognized when they buy back their debt at a discount.
  • Expand net operating loss carry-back provision for small businesses. Allow small businesses with annual receipts under $15 million to cut taxes by writing off
  • Expand the tax break for small business stock sales. Allow small businesses to exclude up to 75 percent of the gain from the sale of some stock held for more than five years. 
  • Develop business in depressed communities. Increase funding for state-wide programs that provide incentives for businesses to locate in economically distressed communities.
  • Expand use of industrial development bonds. Allow small-issue industrial development bonds for “creation of intangible property” in the next two years. Industrial development bonds are tax-exempt bonds issued by a state or local government to finance manufacturing or production of “tangible personal property.”
  • Incentive for advanced energy investment. Establish a new 30 percent investment tax credit for manufacturers of advanced energy property, which may include technology for the production of renewable energy, energy storage, energy conservation, efficient transmission and distribution of electricity, and carbon capture and sequestration.
  • Support battery manufacturing. Provide grants to manufacturers of advanced battery systems and car batteries in the United States.

Aside from these provisions, several other provisions may indirectly effect small businesses. Some examples include: improvement in transportation and clean energy initiatives, the repair of facilities on public lands and parks, the repair and modernization of public housing units as well as abandoned and foreclosed homes. Small businesses could benefit by securing government contracts directly or assisting the bigger companies that secure them.

Image credit: Flickr user

Unsecured Lines of Credit – Can You Get One?

One financing option which I have given less attention to in this blog than to other options is the “Unsecured Line of Credit”. This financing method has two things in common with business cash advance: “unsecured” and “financing”. That is where the similarities end.

Unsecured lines of credit are gaining in popularity (among those who qualify) because so many small business owners are finding that despite impeccable credit and excess equity in real estate, real estate just doesn’t cut it any more in today’s economy. In short an unsecured line of credit is supposed to make financing much more accessible to businesses. In reality… it is still pretty tough to get.

Here are some key things to keep in mind if you are looking at this option for financing your business:

  • It takes 4-6 weeks to obtain an unsecured line of credit. That is, if you are approved.
  • You can’t really apply for an unsecured line of credit yourself – generally, you need to hire a specially trained financial consulting firm to do it for you. Yes, it really is that complicated.
  • The minimum acceptable credit score is 680.
  • You generally have to have been in business for at least two years.

I stopped here. I suppose working for FastUpFront makes me a bit biased, but compare the above with the following points on credit card factoring and you’ll understand my disgust. With credit card factoring:

  1. It takes less than 24 hours to be approved.
  2. Application is simple, you can do it yourself and don’t need to pay anyone fees to apply for you.
  3. There is no credit check.
  4. You can have been in business for as little as four months if you have been getting credit card receipts for that time.

I hope you can see why I think credit card factoring is so great. However, there are cases when you may want to consider an unsecured line of credit… like if your business doesn’t take credit cards!

Alternative Financing is Gaining Popularity

 In the following transcript from the podcast of The Great Big Small Business Show, we see that business cash advance through credit card factoring is gaining in popularity and reputability.   

A simple “swipe” of a customer’s credit card keeps your working capital advance up to date. Since the rate at which they collect the money is determined by a realistic evaluation of your company’s prior monthly credit card receipts, the collection process is both predictable and easy. Their unique credit scoring system provides a “customer-friendly” approach to qualification. When most lending institutions seek to “screen-out” potential applicants, we work hard to “screen-in” qualified business applicants. The response time is fast and approval can be done in just a few days.

This may be something worth checking out for your business if bank and traditional financing is unavailable to your business.

 They also alluded to (and recommended) people-to-people funding services like Prosper

The way Prosper works is intuitive to people who have used eBay. Instead of listing and bidding on items, people list and bid on loans using Prosper’s online auction platform.

People who want to lend set the minimum interest rate they are willing to earn and bid in increments of $50 to $25,000 on loan listings they select.

Borrowers create loan listings for up to $25,000 and set the maximum rate they are willing to pay a lender. Then the auction begins as people who lend bid down the interest rate. Once the auction ends, Prosper takes the bids with the lowest rates and combines them into one simple loan.

I always enjoy when other professionals in the world of financing recognize the benefits of what we do.

New Yorker Cartoon: Qualifying for a Loan

“O.K., folks, let’s move along. I’m sure you’ve all seen someone qualify for a loan before.” (Policeman talking to a crowd peering through a bank window.)

I think many of us can appreciate this cartoon, especially now that getting a loan is so difficult.

If your business doesn’t qualify for a bank loan, or you don’t have the time to go through the long process, you may want to consider alternative financing solutions that can take the place of traditional small business loans.  Often, these solutions are ideal for small businesses such as restaraunts, salons, auto shops, etc. which receive fluctuating monthly revenues, but need to maintain their working capital.

Question: Is Credit Card Factoring Sharia Compliant

A topic which I have become increasingly curious about recently regards Islamic Banking Laws.  Now, all I know is that risk is shared and there is no interest allowed.

In credit card factoring, or business cash advance, we pay business owners money in advance, which they expect to be getting in credit card receipts over the upcoming months. 

For example, in a restaurant finacing case, let’s say our customer is a restaurant owner.  He wants to buy new kitchen equipment for his restaurant.  He comes to us, and we give him $30,000.  In the coming months, when customers pay at his restaraunt using credit cards, the money comes to us, instead of to our client.  We do end up getting back more money than we originally paid out, but it is not interest – we simply advanced him the money at a discount.  The benefits to our client is that even if he has bad credit or no credit, we can still work with him and we can get him the cash he needs quickly.

 Is this Sharia compliant? (Is it compliant with Islamic banking laws?)  I am very curious: why, or why not?

 Thanks to everyone who helps with this.

The New Yorker – Loan Denial

I found this cartoon on .  It reads:  “Here, perhaps you’d like one of our brochures on how we don’t give loans to people like you.” (Loan officer to man.)”

I like this cartoon because it reminds me why I love being able to provide small businesses with alternative financing options. To see what I’m talking about, you can read more from my small business finance blog.

Business Cash Advance – How to know who to work with?

If you are considering Credit Card Factoring / Business Cash Advance as a Cash Flow solution for your business, the next step might be picking an agency you want to work with.  I put together the 3 points which I consider the most important to examine before accepting a business cash advance from ANY agency.

1. Make sure that the details of the process are explained to you.

Misrepresentations are abundant in the world of financing, and credit card factoring is NOT the exception to the rule.  Make sure that you completely understand how the process works and how EXACTLY the process can effect your Working Capital.

2.  Fully clarify with your factor any Additional Fees / Hidden Costs.

Make sure that everything is clear to you and nothing is left vague or otherwise unclear.

3.  Work with an experienced professional.

You should feel comfortable with your advisor and have a good relationship with them.  You should be able to be confident in their experience and trust that their advice has YOUR best interests at heart.

Do your research, check around, but don’t forget to look into using Fast Up Front as your business cash advance provider.  I’m confident that when you look at the above points (and pretty much any other points as well) you’ll be very pleased with the service we give.

Top 3 Reasons Businesses Sell their Receivables.

Lets face it, if a business did not have to, it wouldn’t sell its’ receivables. Yet receivable factoring, in the form of invoice receivables factoring or a business cash advance (credit card factoring) is a very common and widely used financing option for small to large sized businesses.

Although there can be many reasons why a business would seek financing (improvement/change, growth, or survival), here are the top three reasons why businesses choose to sell receivables as a means of financing.

Lack of Security

Bank loans and other secured financing options are not always suitable for businesses that lack security/assets or have already overextended their mortgages (personal or business). Selling receivables depends on the value of future sales and is therefore unsecured.

Bad Credit

Many small and large businesses live with bad credit scores. Bad credit may not hinder a business’s day to day operations but can hurt a business’s borrowing potential as lenders focus on credit ratings as an indicator of risk. Credit card factoring in the form of a business cash advance is not dependant on the business owner’s personal or business credit, making it an attractive option for owners with less than perfect scores.

Quick Approval and Delivery of Funds

Loans take time! Most financing options require a business plan with historical financial reports in the application process. Lenders then assess the application carefully investigating of a multitude of factors. Approval for traditional financing can take weeks, and the transfer of funds even longer. A business cash advance is fast! Businesses can be approved for a business cash advance of up to $250,000 in less than 24 hours and funds transferred within days. For businesses in need of a quick business loan alternative – selling receivables is the best  option (regardless of credit).