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.

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.

Maureen Farrell is a staff writer at Forbes.com and I think I can tell from her recent article that she is an academic who never had to make payroll or struggle for capital. The tone of her article paints anyone who has taken a merchant cash advance as stupid or foolish. Are there really that many stupid small business owners out there?

Most business owners seem to be pleased to have the opportunity to make a choice between “expensive” capital and none at all. Without this type of financing, who would provide the money to grow thousands of small business…the bank? The mortgage industry? Forbes? (Which I love by the way).

What surprises me is that Forbes knows how the free markets work. Capital flows in because of demand and because these funding companies can make a profit to justify their risk without regulation created by beaurocrats to protect business owners from themselves. If there is a great demand for merchant cash advance, it is because there is a great need not being met.

She also makes it seem like this is a product newly popular because of the recent credit crunch. In fact the industry was been around for 10 years now and provided over $500 million of financing to small business owners of all credit profiles in 2007.

I am also a small business owner and collectively we are the largest employer in the Unites States. We have a long history of being the back bone of American business and the engine of creativity. I am surprised Ms. Farrell and Forbes would not give us credit for having the ability to make intelligent business decisions about capital and the growth of our businesses.

Don’t You Love the Ivory Tower… is a post from: Business Cash Advance provider Instant Capital Solutions.

5 Steps to Side-Step a Crunch in Your Business

You’ve been reading about the credit crunch as it affects on the biggest banks and the lower credit home owners in the country for the past several months. This week you’ve been reading about stock market turmoil and the fear of a “global recession”.

This economic storm has worsened recently and in the next 30-45 days you’ll begin to feel the effects in your business in one (or more) of the following ways.

• Slower paying customers
• Reduced consumer demand
• Disappearing personal and business credit
• More conservative business spending
• Better buying opportunities

Counter to press reports, recession is not necessarily bad. In fact, it is a normal and regular economic cycle. A slowing economy does, however, seem to finish off weaker businesses and it will weaken even good businesses.

If you resolve to survive the next one or two economic quarters of “slowing economic growth” then you should consider the following steps to protect your business now and position it for a stronger post-recession future.

1. Take steps now, regardless of current need, to arrange for additional capital. Increase credit lines, get approved for additional credit cards, establish credit with vendors, and pre-qualify for merchant cash advance. Whatever the source, take steps now, before your capital needs increase or your credit standing decreases.
2. Confirm existing credit terms and amounts. Citi Bank recently announced that it is “re-underwriting” existing credit it already has extended to both business and consumer borrowers. Many Citi Bank clients will discover they do not have the credit amount they thought they had.
3. Merchant Cash Advance has been a working capital source for thousands of business owners over the past several years and will now have a great opportunity to move out from the shadows as an excellent financial tool for small business owners. Understand this marketplace and be a wise consumer. (Free merchant advance report).
4. Whenever possible, have customers pay in advance or on credit card. If you do not accept cards, apply to accept Visa and MasterCard now. You’ll be surprised how many business customers will use credit cards and how much accepting them improves your cash flow.
5. Take advantage of renewed buying power. In slower economic times, buying opportunities are more available. If you’ve arranged credit, keep an eye out and ask about better terms and prices if you are able to buy more aggressively.

Recession is a normal economic cycle and this one may last for several months. A recession will likely eliminate some of your competition and leave you financially stronger with greater opportunities in the future.

Credit Crunch Survival Guide is a post from: Business Cash Advance provider Instant Capital Solutions.

If you’ll review past blog titles, you’ll see I’ve anticipated the current credit crunch since last summer, giving readers and clients ample time to prepare for a credit crunch that will almost certainly worsen before it becomes better.

The 1/22/06 Wall Street Journal had 46 related articles to the “credit crunch” including a great one that discussed why funding will get much harder for smaller companies (here).

Many of the biggest small business lenders are reeling with multi billion dollar sub prime mortgage losses and are reducing their lending activities. Citi recently announced they will increase rates on consumer credit and reduce lending limits on already committed and underwritten loans.

Fed Chairman Bernanke’s .75% emergency rate cut yesterday clearly helped calm the stock markets, and should help with liquidity. However, we are not out of the woods. In fact, I suspect we’re still in the middle of the forest.

As alternatives for business financing vanish, merchant cash advance has a wonderful opportunity to fill a void vacated by traditional lenders. From early evidence, that is exactly what is happening.

While some funding companies have had their credit reduced, the industry’s largest and most stable companies are adding additional lending capacity in anticipation of growing demand.

As suggested last summer, smart business owners will take the time NOW to become approved for reserve capital that can be accessed quickly in the event emergencies arise or current credit lines are reduced or eliminated.

Crunch Arrives – Problems will Worsen is a post from: Business Cash Advance provider Instant Capital Solutions.