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BA Loans Decline Despite Bank Bailouts
The Obama administration reported yesterday that Small Business Administration loans issued by banks that received bailout funds declined sharply in January, despite the added government support. In part, the administration cited the declining economy as a primary cause for the falloff in loan demand.
The bailout funds were designed to restart the credit markets, however, the money has not yet had the intended effect. Lawmakers have said that they are receiving a growing number of complaints from constituents who cannot get business loans to maintain their operations. Banks are also withdrawing and reducing existing credit lines for businesses, even when the borrowers are current on their obligations, further exacerbating the problem.
The Obama administration will now require monthly reports from the 21 banks that received federal bailout funds to permit better oversight on how the funds are being used. In addition, the Small Business Administration will now purchase up to $15 billion in loans made by smaller banks. The administration will tap TARP funds to make those purchases. The SBA purchases will give the banks the capital they need to make additional SBA loans.
If you’ve experienced difficulty in getting small business loans, Rapid Capital Funding can help. If your US-based business accepts Visa or MasterCard, and generates receipts of $2,500 per month or more in credit and debit transactions, you likely qualify for a merchant cash advance.
A merchant cash advance allows you to tap the power of your future credit card transactions to get the cash you need today. There’s no long application to fill out and no waiting. You can also get as much as 1.5 times the amount of your average monthly receipts. Good credit or bad, it doesn’t matter. A cash advance isn’t based on your creditworthiness, and you don’t have to explain why you need the money.
Contact Rapid Capital Funding today for more information on how a merchant cash advance can help your business thrive in today’s challenging economy.
Photo Credit: Donovan
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Alternatives To Business Loans
The Equipment Leasing and Finance Association reports that the December Monthly Leasing and Finance Index showed a drop of 13.3 percent in December, compared to the same period in 2007. The index tracks equipment-financing activity. The MLFI-25 index is used in conjunction with other economic reports to provide an overall picture of the health of manufacturing and production in the United States.
New business volume declined by 3.6 percent. One bright spot in the report shows that month-to-month new business volume increased 120 percent in December, compared to figures for November. The report also tracks the status of receivables over 30 days old. The index shows a drop of 3.7 percent in December over outstanding receivables in November. Credit approvals dropped to an all-time low of 71.5 percent and more than one-third of responding businesses reported fewer transactions in the month of December.
The availability of credit continues to affect businesses and their production capacity. The Small Business Administration reports that its 504-loan program, designed to help small firms purchase major assets fell 82 percent in the first quarter of 2009, compared to the same time period in 2008. 7(a) loans, designed to help small businesses start up, fell by nearly half.
Loan volumes are significantly lower, in part, because the programs are administered through private lenders. While the federal government backs 85% of each SBA loan, applicants must still meet tougher lending standards. Even with only 15% capital at risk, many banks feel that start-up companies and those that want to expand represent too much risk.
One option for small business owners is a business cash advance. These loans provide unsecured working capital for businesses and are based on a merchant’s future credit card transactions and are often easier to acquire than a small business administration loan or a loan from a private lender. To get a business cash advance, the business must be registered in the US, accept Visa or MasterCard and have credit card sales that exceed $2,500 per month. Unlike loans, the business cash advance can be used for anything, including the purchase of equipment.
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Small business owners have a large burden on their shoulders right now. Many states are looking to their small businesses to provide the boost needed to get the economy moving again. With the astounding pace of corporate restructuring and taxpayers leery of more bailout plans, Congress is working on new incentives and loan packages for small businesses.
In the yet-to-be-released stimulus package, the House version of the bill would inject $430 million into the Small Business Administration loan program. In addition, the measure will give the SBA the ability to make loans directly to business owners. This provision side-steps private lenders, who reduced their lending volumes by more than half between the fiscal 2008 and 2009 years.
The bill doesn’t cut out private lenders altogether. Instead, it increases the government-guaranteed portion of SBA 7(a) loans from 85% to 95%. The SBA’s role in lending looks much like that of the “lender of last resort.” Under the current plan, the agency will take in loan applications from small business owners and forward them to private lenders within a 100-mile radius of the applicant. If no private lenders come forward, the SBA will work directly with the applicant to provide access to capital. Under these circumstances, the SBA would also service the loan.
In another boost for private lenders, the SBA will make loans to secondary-market brokers and dealers who buy and sell small business loans. The secondary loan market is essential for primary lenders, who use the market as a way to refresh lending capital.
Although the issue hasn’t yet been addressed in the proposed legislation, President Obama has said that he favors approaches that reduce the fees associated with SBA lending. High fees and other costs have discouraged many private lenders. With private lenders unwilling to take on more risk in lending, the low returns on SBA loans has made participation in the program impractical for many lenders.
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