Archive for

Small Business Financing Options

4 types of viable small business financing

Many small businesses face the prospect of going under if they are not able to secure good financing. The need for quick cash injections to keep a small business running can continue even after the first few loans are acquired. However, with each loan taken it becomes increasingly difficult to get a new loan approved. Also, the number of banks and financial intuitions who are willing to lend money to small businesses are rapidly shrinking.

A regular small business loan from the bank

Before you go anywhere else the first place you should go to is your bank. Banks offer some of the best small business loans which can be used as startup capital or to further expand your business. However, your proposal needs to appeal to the bank in a way that helps them feel that giving you a loan is a worthwhile investment. If you’re just starting out your business plan should go into detail about your business and your experience. This will help the bank understand your industry and how effective you can be. Banks will also require the following details from you:

• Cash flow projections which tells them how they will get paid back and when. These should be honest figures.
• Make sure to add personal financial statements.
• If possible add past business tax returns. This will show how exactly your business has been doing.
• You need to have good credit rating to be trusted. Even though this is a small business loan but you are getting the money. Make sure to add your credit report to the file you send as part of your loan request.

Try finding micro-loans

If you are not able to acquire a regular small business loan you may try to get a micro-loan. Micro-loans allow you to borrow up to $35,000 and they are easier to get. Micro-loans work great as small term capital and for equipment purchases. Because micro-loans may require collateral the best use for it is equipment purchases since then the equipment can be put up as collateral.

Short term supplier credit

This type of loan clearly does not work for every business. So, if you’re not a retailer or a manufacturer then you’ll have little use for it. You’ll usually need to pay back this type of loan within 30 to 60 days. However, you should be aware of the fact that the interest rate on short term supplier credit is very high.

Instant small business loans

Also known as quick cash loans and quick cash advance loans these work great for businesses that are not able to find a loan anywhere else. It is also great for businesses that do not have the required assurances to secure a regular small business loan. These types of lenders will usually process your request within a few days and deposit the amount into your account. In most cases you can apply for the loan directly from the lender’s website. However, because the lender is taking a higher risk of lending you money without due diligence the interest rate is slightly higher than what banks offer.

#EANF#

#EANF#

Small Business Finance – Banks Cite Risks For Lack of Small Business Funding

Federal Reserve chair Ben Bernanke is upset over sweeping inconsistency in small business loan approvals in the United States. Bernanke says that banks throughout the nation are denying loan requests from credible small businesses. He urged banks to stop being passive, and start being more active, by lending more to small businesses, adding that they are “crucial to America’s recovery.”

However, bankers feel disillusioned over Bernanke’s sentiments.

They earn money on each loan that they issue. There is a profit-driven motivation for banks to lend. It would seem to be illogical for a bank not to issue a loan, to a credible small business. Most bankers feel that there are fewer businesses to lend to, but are eager to start lending to creditworthy candidates.

Banks versus Washington, and the risks of lending.

The problem remains the same, there is a gap between what the government wants versus the banks. Therefore, the urging by Bernanke seems to be valid from the standpoint of trying to ignite a spark of motivation in the system. Banks remain apprehensive to initiate a loan, without the backing of solid credit history.

Banks are dealing with their own problems, including the latest credit crunch, and shrinking consumer spending. Small businesses have seen their property values dwindle, and funding being limited.

Therefore, risk is hard to accept when it comes to lending.

In states where there are large deficits, risk becomes more of a problem. Small businesses who have felt the added pressure of the decline of a state’s economy may have bad debt, foreclosures, and may face a worsening attitude about lending overall.

The environment for bank lending at this moment is volatile at best.

With businesses seeking to reduce their debt, consumers earning far less money, and markets continuing to level-out, it is uncertain when confidence will be seen in the power of lending. As this happens, consumer prices are being lowered to reflect the economical shift; thereby accentuating big business who can afford the cuts, and the minimizing of smaller businesses and niche markets who cannot.

Legislation is also a key concern of many lending agencies and small businesses. Health care reform has businesses up-in-arms about what to do, and how they will be classified with the reform. They are unsure what the tax burden may be, and are worried that they will incur a tax burden too heavy to bear.

Overall, confidence is what will spur the change in both areas.

Washington is trying to motivate the lending world, with legislation such as H.R. 5297, TARP and the codenamed “TARP Jr.” all of which aim to help with small business lending. Most banks argue that the problem is creditworthiness. Lenders are reticent about any legislation such as TARP, but it must be stated that it never requires lending agencies to do actual lending, it only adds the incentive to do so. Therefore, there is not much of a reason for banks to argue against legislation such as TARP or small business lending programs.

Ultimately, banks hold the power and are hesitant to give out loans to businesses they see as risks. However, there is always risk associated with lending; it is up to the lending agency to determine how much risk to bear, and at this time, they want to keep the tide in their favor.

Some people agree that not all the blame can be put on the banks.

It is easy for the media to vilify banking, and “big corporate” entities. However, every loan a bank makes is also scrutinized by Federal regulators. If a bank makes a loan that is not profitable, they must set aside cash to offset the potential loss. Therefore, why would a bank want to make a loan that is too risky? Some people also argue that regulations should be decreased to allow banks to make riskier loans, but this line of thinking seems flawed at best. The housing collapse was a direct result of mortgage lenders who took advantage of a lack of specific regulation regarding risk assessment, thereby making profit on loans that they knew could not be afforded over the long-term. It is obvious the blame is both on greedy lenders and naive borrowers, in that situation.

Some argue that it is Obama’s fault.

Others blindly put the fault on the Obama administration citing that debt spending will doom the economy. And that the federal government has somehow incited uncertainty in the market. However, the facts are easier to discern. During the Bush presidency, national debt almost doubled. It has almost doubled again since then. And since 2007, the national debt has increased at a rate of 4.14 billion per day. It also must be noted that first-term presidency’s experience the debt of the previous 4, or 8 years of legislation that they did not oversee. Small business owners feel that the government just adds to the red tape associated with operations. Most feel that they are already burdened with too much debt. They are less inclined to hire more workers due to the shrinking of capital, and the uncertainty of confidence in Washington.

Others believe the banks are at fault.

Many argue that the reason there are so many unworthy candidates for loans is because of a banks power to freeze credit, or tighten lending practices. Consumer confidence is also related to credit. If there is a freeze in credit, potentially as it is now, then confidence in the financial industry will fall. Other logic dictates that lending is about risk-management, if banks, who can acquire reserves at no, or very low costs, refuse to lend, then ultimately that is their choice. If there were virtually no risk with lending, the economy would be remarkable, and there would essentially be no, or very little risk taking with business loans. Therefore, the argument of citing risk as a problem does not seem to reflect the real sentiment of the banks; many feel that they just do not want to lend in the current economic condition.