Most business owners who are struggling today could really use a business loan but have no idea where to get one. People hear all the time that millions of dollars in business financing is being offered by banks. For instance, Wells Fargo recently announced the approval of more than $548 million in SBA 7(a) loans. When you hear business loan statistics like this does it translate to an actual place to go an apply?
The truth is that most of the large banks publicize figures like this to advertise and at the same time improve their public image. These loans are very easy to include in the banks’ portfolio because there is little risk, but this also makes them less attractive. The SBA guarantees up to 85% of the money so the banks only risk a small portion of their capital. The SBA also controls the amount of money banks can make so this portion of the portfolio is not the breadwinner. The bottom line is that SBA loans are not very profitable and hard to find eligible applicants. Banks actually have to work hard to place this money.
These loan statistics do look good however to politicians, community message boards, public advertisements, and national press releases. If channeled the right way these types of initiatives can be very successful marketing or lobbying campaigns. There are very limited marketing opportunities for banks as they offer very few dynamic or out of the box products.
The average business is not eligible for an SBA loan. These loans are generally given to non-profits or community boosting organizations. It is not the place for a local restaurant or retail outlet to go and get a business loan. In fact, most businesses are not SBA friendly and that is why the actual business loan statistics in the overall economy today are at decade lows.
What Can Small Business Owners Do?
There is an alternative financing solution for small business owners. A merchant cash advance is a flexible business loan alternative that offers small business owners immediate access to working capital. Also known as a business cash advance, the lender exchanges an upfront cash payment for a set principal and fee total amount to be collected from a portion of future sales.
A merchant cash advance is attractive for several reasons. Because it is not a business loan there is no accruing interest. The fee charged on top of the amount borrowed is established from the very beginning and doesn’t change. Another great feature, because payments are deducted electronically as a portion of sales, when a business goes through a slow cycle payments towards the debt naturally adjust downward. This feature relives some payment pressure during slow business cycles which can be very healthy for developing businesses.
Many of the nation’s small business owners no longer have to look at bank statistics and wonder if they are eligible for a business loan. A merchant cash advance is a great business loan alternative that offers many of the small business owners excluded from SBA and Bank lending access to working capital.