Small Business Financing Drying Up

Small business financing is shrinking, and the numbers are concerning analysts and policy-makers, who understand the importance of small businesses for the US economy. Since 2005, the dollar volume of 7a SBA loans has dropped about 17%. In the first quarter of 2009, (which began October 1, 2008) the loan volumes dropped an astounding 56% over the same period in FY 2008.

Demand for small business loans has dried up. This indicates an unwillingness of new investors to take over an existing small business, or an unwillingness to start a new small business. Compounding the problem, more than 300 participating lenders in the SBA 7a loan program have pulled out of the program altogether. This means that business owners and prospective entrepreneurs who want to capitalize their businesses have extremely limited access to low-interest funding.

One curious note: SBA loan volumes normally rise in recessionary times, as new entrepreneurs strike out on their own - often following a personal job loss. In this recession, that hasn’t happened and isn’t likely to without intervention on the part of the government, according to some experts. In this economy, the secondary credit markets have been crippled, meaning that funders can’t sell loans they’ve made to other lenders and loan servicers. The inability to sell loans in the secondary market means that there is no way for the original lenders to recapitalize for a new round of lending.

The impact of this is visible. In recessions, franchising is an attractive way for new entrepreneurs to start businesses. The number of new franchises grows in a recession as individuals who were formerly employed by another business seek out new opportunities. Franchising is a great way to enter the business world without having to work out the organizational details of owning and operating a new business. It’s also a great way for the parent company to expand.

The impact of the credit crunch is also being felt by existing small businesses that are attempting to ride out the recovery. Without having ready access to short-term cash, small businesses are having difficulty making their monthly payrolls, paying bills and staying solvent. In many cases, the financial problems are not so much a matter of declining sales, but rather a cash flow issue. Customers may take longer to pay their bills, or may skip paying bills for a month or two. These strategies have a ripple effect and impact businesses who don’t have an adequate cash cushion.

A business cash advance can be used to help small businesses weather the recession. Business cash advances work somewhat like an advance on a credit card. There are no restrictions on how the cash can be used, and the advance is repaid as new credit card transactions are made. That eliminates the monthly bills and long-term notes associated with traditional loans. Business cash advances are also much more readily available; 95% of businesses that apply for a business cash advance are approved, and the money is usually available within 7 business days.

If your business is registered to operate in the US, accepts Visa or MasterCard and generates credit card receipts of as little as $2,500 per month, you may be eligible for as much as $250,000 in immediate funding. If you’re looking for small business funding and traditional lenders can’t (or won’t) help, contact Rapid Capital Funding today for more information on a business cash advance.

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