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.

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.

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.

Your business entity must have a minimum of one bank reference. It would be great if your business bank account was at least two years old, but more importantly to place your business in a good lending position it should have an average daily balance of at least $10,000 for the last three months. This is called the magic “low 5″ rating.

Your business banking reflects how you manage your cash flow. Lenders want to know that your cash flow is capable of handling the business debt and expenses on a consistent basis. Accounts that show NSF returned checks can be deal breakers!

If a funding request amount requires a $2,000 a month payment, lenders will want to see at least a “Low 5″ bank rating. Your “Bank Rating” is based on your average daily minimum balance over the last 3 months.

Here is how “Bank Rating” works. It is based on your average daily balance over the past three (3) months, so your rating would be:

Low 4 for $1,000 – $3,999
Mid 4 for $4,000 – $6,999
High 4 for $7,000 – $9,999
Low 5 for $10,000 – $39,999
Mid 5 for $40,000 – $69,999
High 5 for $70,000 – $99,999
Low 6 for $100,000 – $399,999… etc.,

I hope you see the pattern here.Having the $7,000 balance gets you rated at a “High 4″. But having $10,000 gets you a rating of a “Low 5″ and that really changes things. Not having it will not stop the process of building a favorable business credit rating, but it can slow it down. If you don’t have the $10,000, consider borrowing it from family or friends. Remember, you are not going to use it, it will sit in the account so you never go below that important level. Just let it act as your base line in the business account so that your balance never drops below that amount.

The NY Fed has some very good, detailed information on the credit process for small business loans.

Remember, make sure that your business bank account is reported exactly as your legal business entity name and at the same physical address as your business, not a Mail or P.O. Box.

For more detailed information on why this is critical and how it fits into your master plan of intelligent business funding, request your free copy of our CARE Report.

Do You Want to be a "Low 5? 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.