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.

My last post discussed how American Express cut credit limits for business owners when it was needed most and now is advertising how they want to be a part of the economic recovery and a friend of small business.

For the record, they are not alone in their ability to abandon business owners in a time of need.  This Wall Street Journal article on August 12 discusses how wide spread the practice has been and the ability your credit card issuer has to conduct business any way they see fit.

How will you respond?

Amex and others hope business owners forget when times get better, will you?

Business Credit Card Limit Cutting Continues 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.

“We can’t solve problems with the same kind of thinking we used when we created them.”
– Albert Einstein

I wish I could report that the legislation our law makers finally passed on Friday will have immediate impact on the economy and capital will begin to flow into small business lending quickly

However, it will likely take several weeks before the Treasury Department can create room on lenders’ balance sheets and impact underwriting decisions that make capital available to small business owners.

Essentially, traditional business lending sources will continue to limit or freeze their lending activity for weeks.

There are no shortage of articles about small business credit crunches, including Concerns about how franchise restaurants will remodel or expand in Entrepreneurs Scramble for financing Even my local and Tight credit forces stores, restaurants to be flexible .

While these stories reflect the world of traditional lending, it does not tell the entire story of small business financing and the business cash advance industry which has stepped in to fill this capital void for greatfull business owners.

Business Cash Advance Capital, Lending Programs are Available

Truth is, in the past few months, many of the companies we work with to arrange client financing have raised hundreds of million of dollars in new capital, created new lending programs and seen a significant increase in their small business financing.

We are clearly in difficult times, but there are financing alternatives for small business owners in almost any industry with almost any credit profile.

Stay positive.

Small Business Finance – Much Better than Press Reports is a post from: Business Cash Advance provider Instant Capital Solutions.

The results of a recent survey of small-business owners found that the number one barrier keeping them from meeting their financial goals in 2008 is lack of access to working capital small businesses indicated that their own “credit crunch” outweighs all other business obstacles they will face in 2008 including taxes, staffing, seasonality and energy costs.

For the past year, news headlines have cried out that the U.S. is in a full-blown “credit-crunch.” While the impacts of the crisis vary from industry to industry, the common factor is that access to lines of credit and traditional financing is increasingly difficult to obtain, credit and capital are getting more expensive when they are obtainable, and consumers are feeling the pinch as banks tighten approval requirements. Small businesses, which are also consumers of credit, are no exception.

As a result, we has seen a significant increase in business volumes particularly with “alternative funding providers” that offer capital to small and mid-size business owners with personal credit scores as low as 525.

As the industry matures, new funding alternatives have come to the market place at the end of 2007 that offer greater funding options for small business owners who have been able to keep their credit score above 600.

As awareness of alternative funding continues to grow in the business community and options expand, we anticipate more business owners will continue to seek professional, objective guidance about the best financing programs to meet their needs.

Your Personal "Credit Crunch" – 2008′s Biggest Obstacle is a post from: Business Cash Advance provider Instant Capital Solutions.

The merchant cash advance industry continues to evolve into a rapidly growing industry since the product was originally introduced almost twenty years ago. Today, there are estimated to be over twenty merchant cash advance providers although the “big six” dominate the industry. There are also dozens and dozens agents, card processors and sales people offering the merchant cash advance product through various cash advance providers.

As more and more people are selling this product, capital is becoming a more reliable and available funding source to businesses nationwide that may not have access to traditional lending sources. Because a merchant cash advance is typically not a loan, (it’s a sale of future credit card receivables) it allows funding companies an alternative underwriting method to provide working capital to merchants that would not qualify for financing with traditional underwriting formulas.

It is estimated in 2007 alone that $600 million – $700 million worth of merchant cash advances will be provided to help grow tens of thousands of businesses nationwide. With that said, the marketplace has become extremely competitive.

Whenever an industry experiences rapid growth, there are some almost predictable consequences.

1 – Some merchants will be abused by “bad brokers”

2 – Capital will become more competitively priced

3 – The industry will become regulated or will self regulate

Regulation is by far the largest threat. Not to the funding companies, but to the merchants and those business owners needing capital quickly and effectively. If the industry grows too large or if there are significant complaints, the temptation to regulate will likely become too great and I suspect the end result will restrict how this industry can serve the needs of its clients.

It will be interesting to see how this develops over the next two to three years. In the short term, however, merchants today can serve themselves best by using one of the reputable funding companies and working with an independent, professional broker who will help them through the growing and complex network of companies to find the capital that fits them best.

The card advance industry is serving an important niche in American small business and I hope it can survive in its current form.

The Threat of Regulation is a post from: Business Cash Advance provider Instant Capital Solutions.

One of the most common financing mistake I see business owners make it simply not knowing how to set up their business to maximize their business credit rating – and improve their funding. They never establish a business credit score separate from their personal score, and without the proper foundation you are doomed from the start.

So, step one is very simple, create a corporate entity separate from your personal identity. Once accomplished, you have a legal entity separate from yourself. Lets understand what it will take to get you the maximum funding in the shortest amount of time and at the best possible rates.

While others may try to convince you it is possible in a few weeks or a couple of months, it is not. Sorry to burst your bubble, but that little reality could save you $500 – $2500 in bogus credit service fees. If someone promises you great credit, unlimited capital or anything else that seems “too good to be true”, rest assured it is.

Your business sense is probably a pretty good guide here. Don’t let your desperation for capital cause you to make a poor business decision. Building credit is a process. We can guide you through this process, but there is no magic wand that will give you great credit and access to bunches of capital instantly – sorry.

Keep in mind that access to well priced capital will be critical for your business. It will either be a chronic problem or a competitive advantage for you so you should begin the process of stronger business credit right now.

There are 11 key steps to building your credit and you should know what they are and how they will affect your business as you apply for financing. You can learn about all of them in our report: Capital Access and Rate Enhancement. It is a must read and we’ll email you a copy if you’ll click HERE and request CARE report in the subject line.

As you’ll learn in the report, you’ll need A) 1 bank reference (the report will show you a little trick worth it’s weight in gold), B) 5 trade referenced that report directly to the credit agencies and C) a credit file at all three rating agencies, D&B, Experian and Equifax.

Some out there will try to sell you on the idea that all you really need is a D&B number and a Paydex score. That may be true if you only aspire to “trade credit”. However, to get favorable lease terms and bank lending, D&B alone will not cut it.

While this sounds like a lot of information it’s covered in complete detail in our CARE report, which you can request HERE.

How to Really "CARE" about Business Capital is a post from: Business Cash Advance provider Instant Capital Solutions.