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.

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.

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.

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.

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.

Do you Remember October of 1987, “Black Monday” and the market drop of 23% in a single day? That would equate to a 3,200 point drop today.

There are many important lessons learned from that day which you can read in detail at Breakingviews.com. The question back then is the same question currently raised from the “credit crisis”: Will this financial crisis turn into an economic crisis.

Financial crises do not have to become economic crises. To date, this crisis is contained. The amount of loans that could default is not significant enough to push the economy into a recession or threaten the financial system. A benefit of globalization is that the debt is widely spread among investors and institutions around the globe. If the situation does get worse, the Federal Reserve and other central banks have a number of tools available to deal with the problem.

As you keep your eye on the economy, there are three factors to watch for that will indicate it this is the beginning of an economic crisis.

1) The first factor is short-term interest rates. If treasury rates stay low or decline further, investors are not reversing the flight to quality. If short-term treasury rates climb to where they were before the crisis, investors are more optimistic and markets are returning to normal.

2) The second factor is the commercial paper markets, especially the asset-backed securities market. This is where short-term loans are made to companies and sold to investors. Asset-backed loans are secured by specific corporate assets. In coming months, I hope to see that companies are able to issue new commercial paper at reasonable interest rates.

3) The third factor is the dollar. Watch the dollar to see if foreign investors and governments sharply reduce loans to and investments in the U.S. If they lose faith in the potential for good returns in the U.S. or lose confidence in our investment vehicles, the dollar will decline further and sharply.

I believe the credit crisis is overblown and have not seen any impact on our ability to help clients obtain the financing they need to continue to grow their businesses. I do not expect that to change, but will be watching these factors closely.

Your 20th Anniversary is a post from: Business Cash Advance provider Instant Capital Solutions.

Last spring Harvard University’s most famous dropout, Bill Gates of Microsoft, delivered the commencement address. A theme of the address, according to The Wall Street Journal, was complexity. An inspiration for Gates was a comment from Warren Buffett that complexity keeps people from understanding problems and how to solve them, and that prevents change and improvement.

Another of Gates’ inspirations was his experience with his charitable foundation. Once he decided to seek solutions for global poverty and disease, he discussed the issues with friends and associates. He found that while many people wanted to help, the complexity prevented most from understanding the causes and how they could help solve the problems.

I see the same pattern every day as business owners struggle with all the complexity of their current business environment and then, with little time, try to tackle the complex and constantly changing world of small business finance.

How do you get capital? What do you really need to do regarding your business credit? What about a lease? What about a line of credit? What about credit card advance?

Not only is their plenty of complexity and confusion untangling this mess, it changes constantly. And now, with the credit world upside down, leadership and direction is critically important.

It is even more difficult and expensive to venture into this world without contacts, experience and a clear direction of what you want to accomplish.

As the most successful Harvard dropout encourages: “Don’t let complexity stop you. Be activists. Take on the big inequities. It will be one of the great experiences of your lives.”

If becoming a small business financing “activist” does not excite you, hiring one in today’s world will undoubtedly save you hundreds if not thousands of dollars in financing costs.

The Problem of Complexity is a post from: Business Cash Advance provider Instant Capital Solutions.

Lets understand a couple important things about Dunn and Bradstreet.

First of all D&B it not THE credit rating agency, they are one of three, and are relied on by vendors and credit card companies for your business credit profile. For a full business credit profile, you’ll need to also deal with Experian and Equifax.

You will have a “file” with D&B once you have a “Dunn’s number”which is nothing more than a number your company will be identified by, similar to your social security number. This is free and takes about 2 weeks. However, D&B has an expedited service with a charge of $499 . We have had many clients tell us that the phone sales rep has told them they must pay this fee to get “set up” will D&B, which is not true.

Do not be surprised by extremely aggressive sales tactics by D&B.

The first time a potential creditor asks for a credit profile on your company, D&B will need to compile a credit profile on your company or they will have nothing to sell their customer. At that time they will contact you to build your credit profile.

As you can see, there is no need to pay for the expedited services, should a creditor need a profile about your company, D&B will pull on together at that time. Use the $499 more effectively in your business.

While a strong credit profile is very important, it is important to have one at all 3 agencies and it is unnecessary to pay for this expedited service with D&B.

A $499 Gift from D&B is a post from: Business Cash Advance provider Instant Capital Solutions.

Lets understand a couple important things about Dunn and Bradstreet.

First of all D&B it not THE credit rating agency, they are one of three, and are relied on by vendors and credit card companies for your business credit profile. For a full business credit profile, you’ll need to also deal with Experian and Equifax.

You will have a “file” with D&B once you have a “Dunn’s number”which is nothing more than a number your company will be identified by, similar to your social security number. This is free and takes about 2 weeks. However, D&B has an expedited service with a charge of $499 . We have had many clients tell us that the phone sales rep has told them they must pay this fee to get “set up” will D&B, which is not true.

Do not be surprised by extremely aggressive sales tactics by D&B.

The first time a potential creditor asks for a credit profile on your company, D&B will need to compile a credit profile on your company or they will have nothing to sell their customer. At that time they will contact you to build your credit profile.

As you can see, there is no need to pay for the expedited services, should a creditor need a profile about your company, D&B will pull on together at that time. Use the $499 more effectively in your business.

While a strong credit profile is very important, it is important to have one at all 3 agencies and it is unnecessary to pay for this expedited service with D&B.

A $499 Gift from D&B…Sort of. 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.