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New AmEx Survey Says Small Business Has Hit Bottom
A new OPEN Economic Pulse survey conducted by American Express shows that the worst of the recession may be over. While the survey paints an optimistic picture of the country’s financial situation, other experts aren’t so sure.
According to the survey, an online poll of 600 owners or managers of companies with fewer than 100 employees, things started looking up in October of 2008. Fewer small businesses are now worried about closing their doors, and 25% more of small businesses expect their operations to grow, compared to the responses given in a similar survey taken last October.
In terms of payroll, only 17 percent of small businesses plan to hire full-time or part-time employees in the near future and eight percent are planning to cut staff. Small business owners are also reporting that it is taking them longer to get paid than in the past. Other survey results show that fewer small business owners are being affected by tightened credit restrictions, small businesses owned by women are having a more difficult time paying their bills, and two-thirds of small business owners think that their businesses are being threatened by economic factors over which they have no control.
The survey paints a better picture for small business than the economic advisors are. New reports show that the economy may contract by nearly 2 percent in 2009, five times higher than originally anticipated. While credit may be loosening somewhat, the survey still shows that more than half of all respondents have been negatively affected by the credit squeeze.
If you own a business in the US, accept Visa or MasterCard and have credit or debit sales of at least $2,500 per month, a merchant cash advance can put the cash you need into your account today. A merchant cash advance doesn’t come with the same restrictions a loan does. You don’t need to justify your need for the money. Simply fill out an application and Rapid Capital Funding will do the rest.
Ninety-five percent of the merchants who meet the general guidelines for a merchant cash advance are approved, and have the cash they need flowing into their business in a matter of days. Whether you want to pay bills, expand your business, cover unexpected expenses or just increase the cash you have on hand, Rapid Capital Funding can help.
Photo Credit: Konrad Mostert
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Small Business Index Shows Confidence Eroded In January
According to the National Federation of Independent Businesses,
small business owners’ confidence in the economy and in their businesses dropped to the second-lowest level ever recorded by the NFIB in the organization’s 35-year history. The NFIB’s Small Business Optimism Index fell to 84.1, from 85.2 in December 2008.
The organization remains hopeful that signs of recovery will begin to appear in the second half of 2009, but acknowledges that any recovery is unlikely to begin through the second quarter of the year. In addition to the glum outlook for businesses, small business owners reported a significant decline in average employment in January, though capital expenditures remained steady in January, after falling five points in December. Nearly 60 percent of respondents reported a drop in profits in January.
The NFIB says that the number of deferred expenditure plans rose two points, but reports that owners aren’t making big plans to build inventories, and 20 percent fewer businesses expect to see their sales rise, an overall drop of 2 points. The outlook for expected credit conditions was largely negative, dropping fourteen percent from January. Four percent of respondents indicated that credit and financing are their single most important problems right now. Thirteen percent of respondents say that loans are harder to get now than in the past, and demand for loans is at a low.
The drop in loans could signal tough times ahead for some small businesses. Combined with tightened lending restrictions, some small businesses that would normally borrow to get through rough spots aren’t able to get the operating capital they need to stay afloat.
For some businesses, an alternative to a loan is a merchant cash advance. A merchant cash advance can put the cash you need in your hands right away, without the weeks or sometimes months of waiting that can accompany a traditional loan. Even businesses with less-than-perfect credit can qualify.
A merchant cash advance isn’t like a loan. Instead, it’s a cash advance on your future Visa and MasterCard credit transactions. Your cash advance is repaid as you take in new transactions. Nothing could be easier! Most advances are delivered in less than seven business days, and you can request an advance of up to 1.5 times your normal monthly credit card receipts. There are no restrictions on how the cash is used, and 95% of all applicants are approved for the advance.
If you need cash to keep your business moving, turn to a name you can trust: Rapid Capital Funding.
Source: NFIB
Photo Credit: Ben Earwicker
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Small Business Financing Drying Up
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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In January of this past year (2008), there was a report at Research Central and CIO Insight online stating that 186 different financial institutions (credit unions included) had been victimized by online fraud. Additionally, attacks on online credit unions had accounted for 45% of all monthly activity during 2007. Conversely, attacks against national banks had decreased by nearly 44% during the same time frame. Speculation has arisen that with a weakened economy that the credit unions are now easy targets for hackers and scam artists.
The above reports appeared to be just the tip of the iceberg for the problems that the nation’s credit unions have been experiencing throughout 2008, or possibly a harbinger of worse issues to come. It became obvious that the financial sector in the US was infected by the evidences of numerous credit losses and write-downs. Back in August, a report was released by the Wall Street Journal that five of the biggest credit unions in the US have lost considerably on mortgage-backed securities in the residential real estate sector. Entire equity bases were literally wiped out in the process.
This indicates that this housing market distress has been spreading even into the financial sectors were there is less risk involved. Gerald Hanweck, who is a finance professor at George Mason University and is a visiting scholar at the FDIC, has studied the banking industry for quite some time now and feels that the situation has been growing more serious throughout 2008.
In addition to the above, the federal regulator who oversees the US credit unions claims that the losses will most likely reverse themselves once the mortgage markets become more stable, and once these institutions become more adequately capitalized. However, there are some outside observers who are very concerned that these credit unions have underestimated how deeply the problem is running within the mortgage industry.
According to Hanweck, this is a very serious situation and it isn’t getting any better. Hanweck believes that the five credit unions have sufficient funding available to handle a deeper downturn in the situation, but he continually worries that added risk could lead to a more serious run on funds with one or all of them. Since 1990, the total assets of US credit unions have been consistently increasing from just over $200 billion to just under $800 billion as of the end of the second quarter of 2008.
Credit unions are member-owned, not-for-profit cooperatives (organizations) that lend money and take deposits like regular banks. The credit unions have become key players in the mortgage industry, and their problems are focused on the so-called “corporate” credit unions. Unlike the standard credit unions, the corporate entities do not deal directly with the consumer. However, they do provide financing and investment services to the regular credit unions who do deal directly with consumers.
According to several federal regulatory filings, the five corporate credit unions that are showing the largest mortgage-related losses are:
Constitution Corporate Federal Credit Union
Members United Corporate Federal Credit Union
Southwest Corporate Federal Credit Union
U.S. Central Federal Credit Union
Western Corporate Federal Credit Union
As of the end of May, 2008 they had reported nearly $5.7 billion in “unrealized” losses which occur when the current market value of any security drops, whether it has been sold or not.
The fact that these credit unions are experiencing grave financial strain, even though they are the most conservatively operated institutions in the financial sector, indicates that no financial sector is immune from this mortgage meltdown malady. It has also caused far-reaching damage throughout the commercial bank sector and the Wall Street financial services. Mark-downs of over $300 billion in connection with the mortgage industry dilemma have already taken place as well.
As a result of regular credit unions being too small to engage in more sophisticated investing, the corporate credit union came into being for the purpose of serving these smaller entities. A portion of the assets/funds of these regular credit unions gets placed with one of the corporate ones who in turn will invest the money. Assets of the 28 corporate credit unions (which are owned by the member credit unions) total roughly $90 billion. US Central provides the member credit unions with investment services in addition to being a service provider for the corporate ones.
Credit unions, like banks, are insured by the Federal Government for up to $100,000 per account and up to $250,000 for retirement type accounts. Seven of these regular credit unions failed in 2007, and as of August (2008), nine have failed so far. Since these regular credit unions have funds deposited with the corporate ones, a financial failure at that level would equate to losses for the regular credit unions involved, as well as losses for the depositors/members of them. Additionally, it has been 13 years since a corporate credit union has failed, but eventually, the regular credit unions involved with them did recover their funds.
From a historical standpoint, 25 years ago in 1983, Congress passed legislation to increase the United States’ contribution amount to the International Monetary Fund. There was also a conference of 13,000 government financial officials and international bankers that was held in Washington, D.C. during Reagan’s Presidency. It was the joint annual meeting of the IMF and World Bank wherein they addressed problems with the US dollar and interest rates. Of equal importance, these issues shared the stage with concerns over the deadlock of IMF funds.
As of early December, 2008 a two-tiered plan to help those institutions battered by investments in the lending and mortgage sectors has been introduced by the federal agency that oversees the operations of US credit unions. As of this coming January, 2009 the NCUA (National Credit Union Administration) will be awarded a $41.5 billion “shot in the arm” that was approved by Congress in September (2008) to stimulate some liquidity for corporate credit unions that are experiencing continually mounting losses on securities tied to mortgages and other types of home lending.
Additionally, this plan also provides another $2 billion for retail credit unions so they can cut their interest rates on mortgages that are currently held by homeowners who are struggling to make their payments on time. In addition to this, the funding has been structured in the form of repayable loans. No matter what the future holds, or what happens with the long-term viability of these troubled corporate credit unions, the NCUA is counting on the retail credit unions having a serious interest in (and committed to) preserving the entire credit union sector through these difficult financial times.
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Today’s tight credit market is causing franchisers to lend a helping hand to franchisees in need of financing.
“Great Clips Inc., a Minneapolis-based hair-salon chain, says it has secured $14 million in loans for expansions, acquisitions, debt consolidation and refinancing for new and current franchisees.
The franchiser obtained the money from lenders InSource Capital Services Inc. of Sherman Oaks, Calif., and IRH Capital LLC, Deerfield, Ill., “in the wake of all the turmoil and fear out there,” says Rob Goggins, Great Clips’ vice president of franchise development.
Mr. Goggins says the franchiser was able to get the financing partly because of franchisees’ low default rate on previous loans. Much of the money is still available, the company says.”
read full article by Richard Gibson
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