Interesting Factoids I Bet You Never Knew About Working Capital Loans
Public Group active 2 years, 11 months agoWorking capital loans for today’s retail businesses are increasingly tough to come by. While there will be much talk regarding helping “main street” in the media and politics, the the fact is that the most cost effective working capital for business is an SBA or Bank loan. Unfortunately, the restricted credit environment by which we find ourselves means the majority of these loans are not being approved for the retail businesses that need them most.
This leaves many retailers in the unfortunate position of going with a merchant cash advance from their credit-card processing company. These cash advances for working-capital tend to be billed as “convenient” and “unsecured” ways for business people to get “quick cash”. The fact of the matter is, most cash advance companies do secure their loans via a UCC filing against the business. While it may not be within the owners personal credit, for many small retailers, having a UCC filing against their business is not much different. It is a lien that is placed on the business until the advance is repaid.
What is usually left out is that cash advance companies are not regulated through the government as loans. This means that they’re free to charge rates of interest, or factor rates, official site of 50% or higher. Even on a short-run working-capital loan, this really is an astounding amount of interest. Many times, because it isn’t a true loan, the MCA company has the option of changing the rate anytime during the repayment process. These advances are often described as high upfront fees, and the requirement to change payment processors and/or buy new equipment from the provider. They also may have high “holdback” or daily payment rates that represent a real burden for many businesses.
For most cases the active commercial lenders because of this specialized type of commercial funding are limiting working-capital loans to businesses that are current within their debt payments and also are showing a net profit (based on recent bank statements). If these two conditions are met, new commercial loans can frequently be obtained to refinance lines of credit and term loans which have been cancelled or recalled by many loan companies. For businesses not qualified for commercial financing using both of these requirements, there are alternative funding sources for example business cash advance programs.
Many small business owners also depend on personal lines of credit to finance some of their business operations. There are already many reports of widespread cancellations and reductions of these lending programs as well, especially those involving lenders that have received a multi-billion dollar cash infusion from USA taxpayer money that was intended to facilitate the lending of cash to businesses and consumers.
Personal and business lines of credit are already eliminated in many cases by lenders because of a reduced ability to pay by borrowers and deteriorating business conditions. As reported in the Working-capital Journal, a high portion of borrowers, on the other hand, had a good payment history for many recent credit line reductions or cancellations.
On the other hand, you’ll find banks prepared to make working-capital loans. The most notable examples are (for the most part, anyway) not banks which have received bailout funds. Generally speaking, these commercial loan companies happen to be ready to provide working-capital financing, either within the type of new business financing or refinancing lines of credit and term loans that have been recalled or cancelled by other loan companies.
Since it basically indicates that bailout funds happen to be given (so far) to loan companies who primarily have a history of making bad loans (virtually all lenders receiving bailout funds to date), the lending activities described above are a serious concern to many observers. At this point, little attention has been given to loan companies with a healthy balance sheet in federal attempts to acquire more funds into the hands of consumers and businesses.
Sorry, there was no activity found. Please try a different filter.