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Answering the Business Loan Conundrum

The economy continues to go through these tumultuous swings seeking a recovery from the 2008 financial crisis. A report came out this past Friday detailing the slowdown in hiring by U.S. employers and it sparked a sell-off in the stock market. Some reports suggest that job growth is slowing because small business owners are reluctant to hire in an uncertain economy. However, contrary to this line of thought there are others who believe that the slow job growth is a result of a lack of financing for many small businesses who are actually looking to expand. The latter opinion suggests that a supply of business loans for the nation’s growing businesses can be an answer to ending the economic uncertainty left behind from the 2008 fallout.

There have been many recent reports that confirm the slowdown in job growth. In one example on Thursday payroll management company ADP reported that hiring by businesses with less than 50 employees retracted in the month of May. In an attempt to find reasons for the slowdown the National Federation of Independent Business’s monthly survey of small business owners resulted in the determination that owners are reluctant to hire because of a lack of confidence. The most apparent assumption from the reports of slow growth is that small business owners are reluctant to hire because they do not know how their company will perform in the coming months. However, there is a strong possibility that owners would hire more employees if they had access to business financing.

There are several reports that suggest business lending is in decline. On Friday the research company PayNet revealed that business financing for small businesses is down 5% over the last 2 months. Dun & Bradstreet Credibility Corp. also reported the slowdown in lending. Confirming these reports  the Thomson Reuters/PayNet Small Business Lending Index was down to 94.1, falling significantly from the recent 98.5 and December’s 110.5. This decline is likely the culprit for the slowdown and not emotional sentiment.

There is an abundance of data that clearly confirms the slow job growth but apprehension is unlikely to slow ambitious business owners. A more likely reason is that small business owners are looking to hire and expand their businesses but do not have access to the necessary capital that any successful and developing company requires. According to Dun & Bradstreet, surveying small businesses with under 5 million in revenue, 64% of the owners highlighted how not having access to business loans has limited their ability for growth. Even the Small Business Administration revealed that “Three years ago, small-business owners needed to borrow money to survive — now they need it to buy equipment, hire staff, and grow their businesses.” More than just opinion, actual interaction with business owners demonstrates that it is not fear but access that has stifled job growth and the economy.

The solution to a continuously sputtering economy is providing more business loans for the country’s small businesses. There are two main financing options, traditional banks or private lending. The former option is not a likely solution considering a slew of recent data suggests that small business lending from the nation’s banks is at decade lows; it’s extremely difficult to even obtain a mortgage today and that is secured by collateral. Private lending however from merchant cash advance companies is a great solution to the small business loan conundrum.

The dilemma is that our small businesses cannot grow because there is no access to capital, and our economy is stalling because our small businesses cannot grow. What merchant cash advance lenders provide is a flexible alternative to standard small business loans. Private lenders do not require collateral like traditional banks. Also, a business owner can receive a merchant cash advance even if they have bad credit, a common symptom today. Because the advance is based on revenues, any existing business is likely eligible. Additionally, this type of financing can be provided in a matter of days removing the cost and burden of waiting months for a bank loan. A merchant cash advance is a flexible alternative business loan that would certainly close the lending gap left by banks.

The economy is struggling because many small businesses in a great position to expand and hire new employees cannot implement this expansion due to a lack of financing. And because banks continue to tighten the money supply this economic problem perpetuates. Private lending is a great alternative to traditional business loans and can provide the necessary capital to America’s small businesses. The more small business owners know this type of financing exists, the more likely they will apply. Growth in applications will certainly increase approvals considering the astonishingly high approval rates, and this is sure to result in the end the business loan conundrum and stimulate growth in the economy.

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