$30 Billion For Small Business Lending, Think Not!

Recently Congress passed legislation to create a new fund for $30 billion to assit 8,000 community banks in creating business loans. Specfically the bill, known as the Recovery Act Queue" will waive SBA loan fees, allow the SBA to guarantee larger loans and offer tap breaks for those businesses.

While this is a good step in the direction of opening up credit markets for small- and medium-sized businesses, it is just a band aid. Unfortunately, these businesses will still have to go through the traditional banking system to access the funds. That means qualifying under very stringent guidelines, providing full documentation and if approved accessing the funds in 90 days or more. The more critical issue is fixing the credit markets!

Unfortunately the $30 billion does not place restrictions on business size that can utilize the funds. Most bankers are much more favorable to lending to large, established businesses rather than mom-and-pop operations. I have to believe that the $30B will quickly be gobbled up by established businesses retiring pervious expensive debt and leave little for Main Street. The banks will continue to lend to only their best clients and forget it if you have a credit score below 750!

The fundemental issues are still present and continuing to grow. In the MCA space we continue to see record submissions and funding amounts month-after-month. If you are an agent offering Merchant Cash Advance or any other type of alternative business financing, there has never been a better time. The demand is there, the funding companies left are all solid proven players and the range of MCA products continues to expand making it easier to get clients funding.

Do Mortgage Defaults Effect MCA Qualification?

Almost daily we receive submissions for Merchant Cash Advances from business owners that have perfect credit other than a mortgage default/severe delinquency. Many times these owners are perfect with every other payment (car notes/leases, credit card cards, utilities, etc.) and still suffer from sub-600 FICO scores. This obviously makes them ineligible for any type of bank financing.

For a multitude of reasons these merchants are walking away from their homes. During our merchant interview we hear horror stories about how they have tried to negotiate with the bank to do a loan modification or some other workout. We'll this video shows you the real story on why the banks make more money when the home owner defaults. It also reinforces what we all know, that bailouts only help Wall Street who doesn't need them and never reaches Main Street!



Here at American Finance Solutions, we welcome these clients who have good credit except for the mortgage and have a steady business. We know that they are highly unlikely to walk away from the business that they have worked so hard to build. Often we ask for back up paperwork to show that they applied for the loan mod or negotiated a short sale. If they already walked away from the property and the foreclosure is complete then usually documentation is not required. These are good credit worthy clients caught in an unfortunate situation.

If the business owner is a low-500 FICO and struggling across all credit lines, then we have to take a good hard look at the complete picture on both the personal and business side to make a credit decision.

I recently polled our competitors and about half take the same position as AFS, while the other half adhere to strict guidelines. Some require no more than 60 days down on a mortgage while others are 120 days late.

So, do mortgage defaults effect a business owners ability to qualify for an MCA? The answer is, it depends on the situation and who you apply to.

Credit Lines For Small Business Cut 25% Since Last Year!

Everywhere in the news we have been hearing that the signs are there for the end of the recession. Unfortunately the recession will not be ending anytime soon until the credit markets return to normalcy. At American Finance Solutions we supply credit to small- and medium-sized business and we follow the credit market closely and sadly report that credit is being denied at an accelerating pace. Large, well-capitalized companies have no problem finding credit. Small businesses, on the other hand, have never had a harder time getting a loan.

Since the onset of the credit crisis two years ago, available credit to small businesses has contracted by trillions of dollars. The same is true for consumers (who support most small businesses with their spending) and that phenomenon is reflected in dismal consumer spending trends. Equally worrisome are the trends in small-business credit, which has contracted at one of the fastest paces of any lending category. Small business loans are hard to find, and personal credit-card lines for small business owners (a critical funding source to small businesses) have been cut by 25% since last year.

Unfortunately for small businesses, credit-line cuts are only about half way through. Home equity loans, also historically a key funding source for start-up small businesses, are not a source of liquidity anymore because more than 32% of U.S. homes are worth less than their mortgages.

Why do small businesses matter so much? In the U.S., small businesses employ 50% of the country's workforce and contribute 38% of GDP. Without access to credit, small businesses can't grow, can't hire, and too often end up going out of business. What's more, small businesses are often the primary source of this country's innovation. Apple, Dell, McDonald's, Starbucks were all started as small businesses.

What's especially disturbing is how taxpayer dollars have supported "too big to fail" businesses yet left small businesses unassisted and at a significant disadvantage. Small businesses do not have the same access to government guarantees on their debt. After all, most of these small businesses don't issue public debt.

In reality, our government should be supporting the life blood of our economy by offering incentives to community banks to step up small-business loans on a greater scale. These smaller banks could not only bridge gaps created by the shut down in the securitization market but also gaps being created by a massive contraction in credit-card lines. Arguably credit would perform better with these types of loans as they would reintroduce and reinforce the most important rule in banking: "Know Your Customer."

Alternative lending sources such as merchant cash advances offered by AFS will continue to thrive as the trend continues. We get to "Know Our Customers" and offer solutions to access capital and grow your business.