CIT has been an important participant in the small business loan marketplace for the past 100 years and today, they are in bankruptcy.  A sign of the times but not a reason for panic.

In 2008 CIT was the largest Small Business Administration loan provider.  However, CIT provided just $65 million of business loans in the first half of this year.

I am willing to bet, however, you are not familiar with CIT because they are not a lender to very small business owners like you as they tend to lend to much larger “small businesses”.

So, what will be the impact to American small business owners in need of working capital and small business loans?  Let’s focus on the bullet points today as there will be time to speculate over the next few weeks.

1)      The US Governments $2.3 billion equity position created from its cash infusion a few months ago has been entirely wiped out…Sorry.

2)      90% of creditors have already agreed to CIT’s restructuring plan and they expect to be out of bankruptcy in about 60 days.  They will not disappear but there is no competitor looking to fill the void created by their lack of lending.

3)      Their troubles stems from their SBA lending, so it is fair to assume some changes will be made in their business loan underwriting guidelines.

4)      The “small business loans” CIT is well know for are typically to multi-million dollar businesses with dozens or hundreds of employees.  They are not a significant provider of working capital or small business loans for very small businesses.

The macro economic impact is more concerning.  In the short term as it is very likely businesses both small and large will hoard cash and reduce investment plans in the near term, which will not help our economy.

Have you every had a business loan with CIT?  I’d love to hear what communications they have had regarding their business loans and any changes you can expect.

(Jason Kuffer photo (CC))

CIT Group Files for Bankruptcy – How will this affect small business loans? is a post from: Business Cash Advance provider Instant Capital Solutions.

Often when politicians try to “help” business owners they are just shilling for future votes.  I expect today’s announcement of a “small business bail out” to be no different.

While there are many reasons today’s announcement will have little impact on Main street, here are three off the top of my head.  I expect the political rhetoric from Mark Warner, (D- Virginia),  Christopher Dodd (D-Connecticut) and The White House today will likely have very little impact on small business owners in search of working capital or business loans.

First,  The White House will raise the limits on government-backed small business loans, so what?   While that may sound appealing to the few politicians that understand its impact,  it does not focus on the real problem.  It’s not the lending caps, it is the qualification for loans and tight credit environment.

Also, what about the Treasury’s March announcement of a $15 billion program to purchase pools of SBA loans.  This will really help, but so far has not been implemented.

Secondly, there are plans to “re-emphasize” community bank access to the TARP.  Only in politics does “re-emphasizing” count as policy change or anything substantive.

Community banks do not want to access TARP funds, because they are prohibited from charging any fees on the lending they make.  Other than our government, an enterprise can not survive without charging reasonable fees for the services it provides.

Finally, there is a current requirement that anyone participating in TARP sell warrants to the government giving the U.S. the right to purchase common stock at a set price.  Would you accept government money if you had to give Uncle Sam the option to buy part of your business?

These are my thoughts, do you think this is it rhetoric or real change we can believe in?

White House Small Business Loan Program, Rhetoric or Real change? is a post from: Business Cash Advance provider Instant Capital Solutions.

It happens every single day and often kills small business owners without a great credit score.

This morning’s Wall Street Journal’s did a great story on free credit score reporting.  I know you have multiple issues you manage on a daily basis, but hey, this is about bottom line profits.  There is nothing more important.

Your credit score will ultimately have an impact on profits and sales, so focus.  The impact of your credit score is not noticeable to most owners until it becomes expensive.  As a business owner there are other levels of complexity which I’ll develop in a future post.  Today I’ll just illustrate the financial importance of your credit score.

Your FICO score not only impacts the availability of capital for a small business,(which could save your business one day)  it has direct impact on your profits as well.  Because this is an abstract concept for most, let me give you a specific look at the financial rewards of strong personal and business credit.

Last week I helped a business owner secure an equipment lease for a new machine he wanted so he could expand into a more profitable business segment.  His credit score of 620 (below average) provided a bit of a challenge, but we were successful with his equipment financing.  He elected a 5 year lease with a monthly payment of $1,025.  He was thrilled because his return on investment was significant.

Here’s where I hope to get your attention:

The exact same business owner with a 720 FICO score would have been offered a lease with a monthly payment of $836 per month.  Over the 5 years his equipment lease, he would have saved $11,340, his monthly cash flow would have been improved by $189 and his ROI would have been even more impressive.

I realize there are many issues that demand your attention each day and it is easy to ignore issues that are not burning.  Don’t!  Maintaining your credit score is relatively easy and will have an important impact on the profitability, and maybe even the survival, of your business.

The $11,340 Credit Score Mistake is a post from: Business Cash Advance provider Instant Capital Solutions.

One of the most popular innovations in small business financing over the past 10 years has been the business cash advance (merchant cash advance) industry.  This industry has provided billions to cash starved small business owners of almost every credit profile over the past decade.

Like most industries, the business loan alternative industry has continued to mature and offer different financing potions that are less expensive and have different requirements for the borrower.  A “non-bank business loan” is one of the most recent innovations in this maturing industry designed to provide loan alternatives to small business owners.

What is a “non-bank loan”?

It is an evolution from a traditional business cash advance.  As the business cash advance industry continues to mature I anticipate additional funding companies will step in and fill gaps in the marketplace.  Initially, business owners who could not get a traditional bank loan for any of a dozen reasons had only business cash advance as an alternative.  Even with great credit and a willingness to sign a personal guarantee, these owners were stuck with higher priced capital and shorter repayment periods.

Over the last year, a couple innovative financial companies have developed programs that have begun to fill this niche.  The first program I call a “non-bank business loan”.  This is an actual loan (unlike a business cash advance) and requires a personal guarantee from the borrower.  However, it is preferred over a cash advance because it is much less costly and does not require any change to your merchant processing company as many (not all) business cash advance companies do.

These programs do not require a change of credit card processor, they simply divide your stated repayment amount by 250 (business days in a calendar year) and take that amount as a fixed daily payment.  Some owners prefer a consistent daily payment which has an even impact on cash flow rather than the variable repayment that cash advance offers.  However, some prefer payments that reduce when revenue slows and increases during strong cash flow periods.  The choice is now yours.

As the economy has worsened over the past year, these companies have continued to provide financing to business owners who qualify, though some have reduced the amount of financing they are willing to offer.  While this funding is very welcomed, the amount of financing is often a source of frustration for business owners with larger financial needs.

What is a “private” non-bank loan?

This business loan alternative is virtually the same but is financed by private investment funds.  They typically offers the same pricing but larger funding amounts, and will typically require more documentation (2 years tax returns) than other funding alternatives, but offer an excellent combination of pricing and lending amount.  Many of these funds will lend up to 6% for your total annual sales (averaged over your last 2 years).  So, if you have averaged $1.5 million over the last two years, you should expect financing up to $90,000 if you qualify.

I expect to see the business loan alternative industry continue to become more creative and innovative as traditional bank loans and SBA loans fail to meet the needs of small business owners in search of working capital, business loans and growth opportunity financing.

Business Loan Alternative: Part II is a post from: Business Cash Advance provider Instant Capital Solutions.

Do you remember how frustrating he was?  He was the cause of problems, putting the Robinson family in danger because of his greed, stupidity or fear.  After the crisis passed, he would deflect blame and grab credit.

That is exactly the feeling I got last night when I saw an American Express ad forecasting a light at the end of the economic recession and the rebirth of a new and better small business economy.  Clearly, their Dr Smith moment.

Reality is that American Express cut credit limits to small business owners in their moment of need.  This not only limited available credit, it cause credit scores for many to drop and their cost of capital jump.  In other words, Amex was part of small business’ problem, not a solution.  When times were tough and the recession was scaring many business owners, Amex cut their risk and ran for cover.  Owners were looking for small business loans and working capital while Amex was taking them away.

Now that things are looking brighter, they want to be a resource and a friend.  Until when…?

I understand weakness and fear, we’ve all experienced that at one time or another.  I understand Amex wanting to protect their balance sheet.  What I do not tolerate well is Amex boldly proclaiming they are part of the solution now that the future looks brighter.  I did not like it when I was a kid watching Lost in Space and I do not like it now when my business is on the line.

I think Zachery Smith is Running Amex Small Business Loan Department is a post from: Business Cash Advance provider Instant Capital Solutions.

Earlier this week I read a very interesting, front page article in the Wall Street Journal that discuss how consumers are scrambling to raise cash now with the economy slowing. It is obvious to me that some of these decisions will very likely have a negative, long term impact on their financial health.

As business owners deal with this economic slow down, it is helpful to have simple criteria to help with your financial decision making. One helpful question: “Will this strategy harm my company by reducing its long term value”?

It is certainly more fun to manage your business in a time of economic growth. However, decision making during slow periods often have a more important impact on how well your business performs in the long run. Small business owners understand that during slow times there is less profit. It is the long term enterprise value of the company that you want to protect.

Here are some of the non-conventional alternatives that business owners could consider as they look for working capital to survive this slow economic period. I hope it helps you with your decision making and ask you to reply with other options you have considered for financing your company.

Negative Loss of Loss of Permanent Negative

Credit Asset Company Economic Tax

Option Impact Control Equity Loss Impact

This economy is providing a wonderful opportunity for the business cash advance industry to prove its value to the business community. So far they have met that challenge as several companies have raised new capital to lend and are setting records for advances they are providing to business owners managing this recession.

While the cost of capital is more than traditional financing, it is available now and, when used properly, helps a business owner maintain or even enhancing the long term value of your company.

Long Term Planning for Short Term Cash Needs is a post from: Business Cash Advance provider Instant Capital Solutions.

Yesterday I was reading an industry publication and the chairman of a fairly large Merchant Services company commented that merchant cash advance is “a great product for add-on sales because ti gives the sales rep the advantage of having another product line to sell.”

I absolutely hate that language. I hate the idea of someone, particularly an industry person, referring to merchant cash advance as a product. It reflects a lack of appreciation and understanding for what this financial tool can really do for business owners if designed properly.

Yes, there is an element of sales with merchant cash advance, but there is (should be) more craftsmanship and design than salesmanship. The language is a reflection of a dominate culture in many companies that are supposed to serve business owners, not sell to them.

Last week I spoke with a restaurant owner who did not take a business cash advance because they could not afford to give up 25% of their Visa/Mastercard sales for repayment. We designed a funding amount that only required a 14% repayment and they were able to put the new funds to work to improve and expand their summer dinning area.

A day spa owner did not take the working capital she was approved for because it required her to change her current credit card processor. We arranged funding with a company that allowed her to keep her processor and sales are up over 12% with the new equipment she has in her spa.

A vet with a very successful pet hospital in Illinois had excellent personal and business credit and also needed equipment for her clinic. She did not like the expense of traditional business cash advance but did like the significant discount we arranged for her because of her credit profile. New equipment arrives next week.

I offer these as examples of carefully designed solutions, not products. As long as sales people view merchant cash advance as a “product” to sell instead of a solution to design and customize, the marketplace will remain under served.

When a “Great Product” is a Bad Idea is a post from: Business Cash Advance provider Instant Capital Solutions.

At $27 billion, the bond market is not only larger, but arguably more important to most small business owners than the more popular stock market. It is the bond market that allows banks to package and sell mortgages, car loans, credit card debt and business loans to investors, allowing them to replenish their balance sheet and make new loans.

The bond market has allowed banks to maintain a strong capital position as they try to manage the sub prime mess. New capital has allowed them to keep lending when in the past they would have turned off the spigot. (Read more – WSJ)

Nationwide, commercial and industrial lending, the critical loans that fund plant expansion, share buybacks and the growth of American small business has jumped significantly over the past 2 years.

The problem, and in my opinion the beginning of the “trickle”, is that many banks have been forced to take on loans and support credit lines they never expected or intended to make. Banks made enormous commitments to companies, hedge funds and private equity firms as they fund share buybacks, acquisitions and take over public companies at a record pace in 2007.

Problem is, banks would have normally sold these commitments to investors through the bond market. However, the buyers have disappeared and the big banks are now holding these loans, taking up valuable room on their balance sheets. Lehman Brothers estimates there is currently $150 billion in buyout loans that still need to be sold by banks and there is the risk of billions more that will go unwanted in the coming months.

Real estate lending has taken the biggest and most visible hit thus far, but we have significant concerns that tightening will extend to the business market and could trickle down to effect small business owners within months.

We continue to work closely with our funding sources, have capacity for $3 million of business funding for the remainder of 2007 and DO NOT anticipate any impact on our capacity or underwriting requirements through Q1 of 2008

“Trickle Down” Anticipated, $3 Million Allocated is a post from: Business Cash Advance provider Instant Capital Solutions.

With a business entity, you need to demonstrate to the business-lending world that you are worthy of business capital (plenty of it) at good rates. The secret combination to unlocking this type of capital is 5,3,1.

Your business will need to have 5 trade references, 3 credit rating files (one at each agency) and 1 bank reference. Lets take a very quick look at each and why they are important to your business.

5 Trade References

If your trade references do not report to the credit agencies, you do not have trade references. There are over 500,000 vendors who will extend credit, but only 6,000 automatically report to the agencies. Obviously, you need to work with some of these vendors.

Does this mean you need to change your most important vendor because they do not report? No. However, I’m willing to bet you do not care who you buy your office supplies from, correct? Now that you have established that account, do not pay it on time, pay it early. Automatically, you’ll improve your business credit score over time because they are reporting you as an early payer. Get the picture?

3 Business Credit Agencies

You need to have an account with each agency, D&B, Experian and Equifax. Equifax reports are developed only from information provided by your trade references, business credit card accounts and leasing companies. Equifax is developed from information provided by your business credit card accounts and leasing companies. (Hopefully you are getting the idea that a real business credit card is an important business capital tool).

D&B is trickier because they have a very aggressive and relentless sales force. With that said, you need to deal with them, but you also need to know HOW to deal with them. I would not suggest you call D&B until you have read Point #10 in our CARE Report – twice! Get it HERE.

1 Bank Reference

Banks are very tricky, but a “low 5” bank rating will help you more than you can know as you build your credit. The CARE Report shows you why and a neat little trick to have you looking great to potential lenders relatively quickly.

I keep referencing the CARE Report because it goes into much more detail that this Blog allows. There are almost 20 pages of strait forward information on how to turn your business credit into a completive advantage for your company. It is a great business tool and one we’re proud to make available to you at no cost – request a copy here.

5-3-1 The Secret Combination to Business Capital is a post from: Business Cash Advance provider Instant Capital Solutions.