The tightening of the traditional sources of working capital started in 2008 and has never really loosened since this time. Many banks, supposedly bolstered by US government loan guarantees are supposed to be lending to small business once again, but the reality is much different. While the government can guarantee loans to small business against default, they cannot compel a lending institution to lend to them.
Into this gap have stepped many different alternative working capital solutions that can still provide a business with the sources of working capital they need. However, it is important for any business to know that these sources of working capital can carry risks. Below is a list of some of the common sources of working capital that are available right now:
1.) Merchant Cash Advance – This source of financing is not technically a loan, but rather, an advance against future credit card receipts. Most cash advance lenders require that the merchant process a minimum each month in credit card receivables. They then advance a portion of this going forward at a discount to the merchant. In other words, they may purchase $14000 worth of future credit card receivables for $10000. So the business in this scenario gets the $10K upfront, and pays back $14k over the next 6 to 9 months. Most of these advances are short term, and payable daily after each credit card batch automatically 5-6 times per week depending on the source. While these advances can work with tough credit situations, remember that high rates and fees are normal as this type of advance is not regulated by state usury laws governing maximum rate. Watch out for rates as high as 70% and upfront fees to apply as well as requirements to switch processors and possibly buy new swipe equipment.
2.) Credit Express Business loan- Similar to the cash advance with respect to its ability to handle tougher credit situations, this loan features rates that are 30-50% lower than a merchant cash advance with no upfront fees or requirement to switch credit card processors or pay for new equipment. As a true business loan, this product will allow borrowers down to a 550 FICO and maximum loan amounts of $250k. Documentation is minimal with no business plan required and a short application. Normal Funding time is 2 weeks or less.
3.) SBA backed loan- The SBA is far and away the best choice for working capital when it comes to rates and fees. Recently, the Obama administration raised the government default guarantee available to banks to as high as 90%. Theoretically, this should encourage banks to lend more on these types of loans, but so far, the data doesn't bear that out. Even so, if you have time and sufficient documentation, this is the best way to go for most small business. Be sure to plan on a lengthy application and a requirement for 3 years P & L as part of the application process. However, it can be worth it if you are able to get approved. If credit is an issue or you need the money quickly, this option may not be the best for you. Startups also may have an option with the SBA's micro loan program. Click on the link below for a free SBA buyers guide and full information.
Hopefully, this gives you some key insights on what you need to know for you working capital needs. For more information on flexible working capital solutions, check out the link below.
Into this gap have stepped many different alternative working capital solutions that can still provide a business with the sources of working capital they need. However, it is important for any business to know that these sources of working capital can carry risks. Below is a list of some of the common sources of working capital that are available right now:
1.) Merchant Cash Advance – This source of financing is not technically a loan, but rather, an advance against future credit card receipts. Most cash advance lenders require that the merchant process a minimum each month in credit card receivables. They then advance a portion of this going forward at a discount to the merchant. In other words, they may purchase $14000 worth of future credit card receivables for $10000. So the business in this scenario gets the $10K upfront, and pays back $14k over the next 6 to 9 months. Most of these advances are short term, and payable daily after each credit card batch automatically 5-6 times per week depending on the source. While these advances can work with tough credit situations, remember that high rates and fees are normal as this type of advance is not regulated by state usury laws governing maximum rate. Watch out for rates as high as 70% and upfront fees to apply as well as requirements to switch processors and possibly buy new swipe equipment.
2.) Credit Express Business loan- Similar to the cash advance with respect to its ability to handle tougher credit situations, this loan features rates that are 30-50% lower than a merchant cash advance with no upfront fees or requirement to switch credit card processors or pay for new equipment. As a true business loan, this product will allow borrowers down to a 550 FICO and maximum loan amounts of $250k. Documentation is minimal with no business plan required and a short application. Normal Funding time is 2 weeks or less.
3.) SBA backed loan- The SBA is far and away the best choice for working capital when it comes to rates and fees. Recently, the Obama administration raised the government default guarantee available to banks to as high as 90%. Theoretically, this should encourage banks to lend more on these types of loans, but so far, the data doesn't bear that out. Even so, if you have time and sufficient documentation, this is the best way to go for most small business. Be sure to plan on a lengthy application and a requirement for 3 years P & L as part of the application process. However, it can be worth it if you are able to get approved. If credit is an issue or you need the money quickly, this option may not be the best for you. Startups also may have an option with the SBA's micro loan program. Click on the link below for a free SBA buyers guide and full information.
Hopefully, this gives you some key insights on what you need to know for you working capital needs. For more information on flexible working capital solutions, check out the link below.