However this good news does not paint a complete picture. The successful stimulus package expired in May with $1.9 billion loaned that month. As a result of its expiration June saw a steep drop-off; a two-thirds decline in dollars loaned, to just $647 million. Theses levels of lending are the lowest in years; even lower than in fall 2008, the beginning of the financial meltdown.[statistics from NY times] There is already data suggesting that July will provide similar results.

The reason for the dramatic drop in money lent through the SBA program is that the guarantee has dropped from 90 percent to 75 percent of the value of the loan. This drop in guarantee not only makes the loans more risky for the bank but it requires 250% more capital to make the same loan.

“If I make a $1 million loan with a 75 percent guarantee, I need 10 percent of the $250,000 that is not guaranteed, or $25,000, as a capital requirement. If the loan is guaranteed at 90 percent, then I only need $10,000 in capital allocated toward that loan.” – NY times

This means that a new bill that sets the guarantee back to 90 percent should improve the current situation dramatically. Luckily, there is a new stimulus bill that would accomplish this, however it is currently stalled in congress, and there is no telling when or if it will pass.

While the bank lending is subject huge shifts in availability based on the action or inaction of congress, alternative forms of financing provide a stable and reliable source of funding. These loans are not provided on the basis of government backing and thus availability is dependent on market factors. As well, these businesses are less regulated than the big banks, which allows them to be more flexible and accommodating to their clients.

Factoring: Reliable Financing is a post from: Factor Direct Capital

That is the essence of the Community Express program that offers smaller loans, from $5,000 to $25,000, and the most streamlined application process among SBA loans. The program aims to fill a key void in small businesses lending by targeting smaller companies that are traditionally underserved by banks.

To be exact, these businesses remain underserved by banks, because Superior Financial Group is a non-bank lender. Banks are currently tight in their lending, especially for small businesses. This is why non-bank financing has become increasingly prevalent in this recession. Small businesses have turned to sources of financing that wont waste time and will approve their funding requests. This means that non traditional lenders have become the essential suppliers of capital while the banks are on the sidelines.

These non traditional lenders come in many forms. Community Express loans are a solid an option in this respect. However businesses that cannot qualify still have alternatives. Asset based lenders provide a range of financial products that can provide much needed access to capital. PO financing, factoring are two asset based financial tools that are generally available to businesses that have been turned down by other lenders. These forms of finance help leverage the credit of a business’s customers. This means businesses can gain access to capital based on their customer’s good standing.

One fundamental problem with PO financing and factoring is that it can only be utilized by businesses that have commercial clients IE B2B companies. However, a merchant cash advance can fill the void for retail businesses and provide much needed access to capital. It essentially borrows against a business’s future credit card sales to provide an immediate lump sum. This is another non bank solution to small business financing.

The moral of the story for small business is to think outside the bank. Alternative lenders will provide quicker and faster capital with less probability of getting turned down thus less wasted time. Truly superior value when compared to a bank.

Sam’s club SBA lending highlights a new trend: fast capital is a post from: Factor Direct Capital

With the current uncertainty, managing business risk is of utmost importance. Survival is the name of the game right now and adding operational expenses is only for the ultra-confident or extreme risk-takers. This is why it is a great time to consider factoring as opposed to bank loans to finance operations. Bank loans create a liability that adds to operational expenses. This fixed obligation could become a burden when cash flow gets tight, thus it creates financial risk. Factoring, on the other hand, creates no new debt and thus no new financial risk. On the contrary, factoring is more akin to the sale of an asset. You ‘sell’ all, or a percentage of your receivables and receive cash for business operations immediately. I say ‘sell’ because factoring is technically an assignment; a factor buys the rights for a payment on a receivable. This means the customer bears the obligation to make good on the receivable, while you use the money for day-to-day operations. This means that factoring creates no new financial obligation and thus no new financial risk.

Factoring is also good for this uncertain economic climate as it is a very flexible financial arrangement. Because factoring amounts to a short term cash advance, it is easy to adjust the amount of financing needed at any given time. If the economic climate changes, factoring can be cut-off or increased depending on what is best for the new situation. The same cannot be said for a standard bank loan; businesses are locked into terms no matter what happens with the economy. Using factoring in this uncertain climate is a good way to stay aggressive but still hedge your bet.

Factoring can actually help reduce certain risks a business is exposed to, specifically the risk of non-payment from a customer. This is because factoring companies run credit checks on all of their client’s customers. This provides valuable insight on the financial position your customers are in. Offering trade credit to businesses that are not credit worthy is a very risky proposition which becomes all the more risky if the economy gets worse. Factoring can provide the information to make informed decisions that will help manage risk exposure.

Factoring and Business Risk is a post from: Factor Direct Capital