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Small Businesses’ Credit Profiles Are Improving. Is Yours?

November 20th, 2012 ::

By Karen Axelton

Ask any small business owner who’s been trying to borrow expansion capital, obtain working capital or simply get a line of credit from a lender, and they’ll tell you it’s become far more difficult since the recession hit. However, a new study by Direct Capital Corporation suggests that the tough times may have actually had a beneficial effect on small business owners in one way: Since the recession hit in 2008 and during the past few years of recovery, small business owners’ average credit profile actually improved in 45 out of 50 U.S. states.

Direct Capital Corporation, a nationwide lender to small businesses, reviewed credit data for over 23,000 small businesses nationwide during the past 12 years. Where do small business owners have the strongest average credit profile? Nebraska topped the list, followed by Alaska, South Dakota, Indiana and Oklahoma.

The states where small businesses’ average credit profiles have declined in the past four years are Washington, DC (which had the lowest average credit profile), followed by Rhode Island, New Mexico, Montana and Texas.

Direct Capital Vice President of Marketing Stephen Lankler says one reason for the surprising change is that business owners have a heightened awareness of how important it is to keep their credit score high. “Business owners today are much more aware of how important it is to maintain a strong credit profile,” he said. “That was not the case five to seven years ago when it was much easier for a business to access credit.”

Lankler says growth in the number of products that give businesses on-demand access to their credit profiles has also contributed to the higher credit scores. “As a result of the financial crisis, major lenders – including banks – have become much more restrictive in extending credit to business owners,” Lankler said. “In response, business owners have become more vigilant in maintaining strong credit profiles and a flood of products have been introduced to help them do so.”

What are some ways you can keep your business’s credit score high?

  • Pay your bills on time and if you cannot, talk to the vendor to work out a payment plan.
  • Monitor your business’s credit report to note any errors and take steps to correct them.
  • Don’t mix personal and business funds. Use business, not personal, accounts for business purchases.
  • Use business credit cards carefully, being sure not to overutilize credit. Ideally, pay off your balance in full each month, but if you can’t, keep your balance under 30 percent of your available credit.
  • Even if you never plan to use it, make sure you keep enough available credit (through business credit cards and other options) to get you through an emergency if need be.

Image by Flickr user ThirdLegReviews (Creative Commons)

 

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Posted in Capital Access, Raising Capital, Small Business, small business | 3 Comments »

Will the Community Bank Crunch Squeeze Small Business? How to Find Out

September 6th, 2012 ::

By Maria Valdez Haubrich

If your small business has received loans or lines of credit from a community bank—or was hoping to do so—you might find it becoming more difficult. Inc. recently reported on a coming crunch that is hitting community banks, with possible ill effects for small business owners who depend on those banks for capital.

The problems stem from the Troubled Asset Relief Program (TARP) which gave banks nationwide funds from the U.S. Department of the Treasury that had to be paid back with interest. While Inc. reports that the nation’s larger banks have already paid back their TARP debt, about 300 community banks across the country haven’t yet done so.

The Treasury Department is winding down the TARP program, raising interest rates for banks that still have outstanding debt to pay back. These banks are being hit with a perfect storm: In addition to the need to pay back principal and higher interest, new federal regulations as a result of the Dodd-Frank Act require community banks to have more available cash for emergencies.

The result? Many community banks are being forced to cut back on lending to small business in order to handle their TARP responsibilities and have enough cash. That’s bad news for small businesses, which rely greatly on community banks for their capital needs.

Inc. cites FDIC data that smaller banks (those with $5 billion or less in assets) made $336 billion in small business loans in the first quarter of this year. By comparison, banks with $5 billion or more in assets made loans of $311 billion to small businesses. Small business loans account for nearly one-fourth of all loans by community banks, compared to just 5 percent of bigger banks’ lending.

How can you know if your bank will be affected by this issue? The best way is to talk honestly with your banker. Ask whether the bank accepted TARP funds and, if so, whether they have paid the money back. If not, try to get the banker’s take on how this responsibility will affect future loans to small business.

Even if your bank is not affected by TARP, be aware that small business owners whose own banks are cutting back on lending may start approaching your bank for loans. In other words, if you were considering applying for a loan or line of credit, the time to act is now.

Image by Flickr user Alan Cleaver (Creative Commons)

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Posted in Capital Access, Raising Capital, Small Business, small business | No Comments »

Temporary SBA 504 Loan Program Provides Working Capital for Small Businesses

July 19th, 2012 ::

By Maria Valdez Haubrich

Are you looking for cash or working capital to grow your small business? Then you should know about a temporary Small Business Administration (SBA) program that could help. As part of the Small Business Jobs Act passed in 2010, the SBA started a temporary program enabling small businesses to refinance eligible fixed assets through its 504 loan program without having to expand their businesses. This temporary refinancing program will expire on September 27, 2012, so now is the time to see if it can help your business.

Here are some of the benefits of the temporary 504 program:

  • Eligible small businesses can get below-market pricing and long term, fully amortizing fixed rate loans.
  • You can finance up to 90 percent of the property’s current appraised value.
  • In some cases, you can “cash out” proceeds from the refinancing to pay eligible business expenses, including payroll, inventory and accounts payable.

Eligible applicants for the 504 refinancing program must:

  • Show that their loans are current
  • Have made all required payments in the last year with no payments more than 30 days past due.
  • Debt to be refinanced must have been incurred at least two years before the date of the loan application

The temporary program is structured like SBA’s traditional 504 loan program (although it’s separate from that program). Small business borrowers work with third-party lending institutions and SBA-approved Certified Development Companies (CDCs) to get financing. The loan is typically made up of three parts:

  • A loan (or first mortgage) secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost,
  • A second mortgage secured with a junior lien from an SBA-approved CDC covering up to 40 percent of the cost, and
  • A contribution of at least 10 percent equity from the small business owner.

For more details about the temporary 504 loan program, visit the SBA website and the 504 FAQs page.

Image by Flickr user vxla (Creative Commons)

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Posted in Capital Access, Raising Capital, Small Business, small business, Uncategorized | 1 Comment »

More Small Business Owners Plan to Seek Bank Loans

July 10th, 2012 ::

By Karen Axelton

Where are small business owners turning for financing these days? If you think entrepreneurs have given up on obtaining bank loans, think again. More than two-thirds (68 percent) of entrepreneurs seeking capital for their businesses in the next six months say they will pursue bank loans, according to a survey from Pepperdine University’s Graziadio School of Business and Management, conducted in partnership with Dun & Bradstreet Credibility Corp.

The next most popular source of financing was a business credit card, cited by 40 percent; followed by credit unions or Community Development Financial Institutions Funds (CDFIs), cited by 36 percent.

The First Quarter 2012 Private Capital Access Index study found that business owners with revenue of over $5 million were more optimistic about successfully raising financing from banks than were smaller businesses. Ranked on a scale from 0-4, larger businesses’ confidence in their ability to get a bank loan averaged 2.3, while businesses with sales under $5 million ranked their confidence level at 1.4.

The numbers show significantly higher interest in bank loans compared to the prior survey findings released in December 2011. At that time, just 37 percent of respondents had actually tried to get bank loans in the past 12 months. In contrast, nearly half of respondents (49 percent) had used credit cards. Of course, it remains to be seen if the 67 percent of entrepreneurs planning to apply for bank loans actually follow through. However, the growth in intention alone is a positive indicator.

“As business owners secure more traditional sources of financing and rely less on their own personal resources,“ said Dr. John Paglia, director of the Pepperdine Private Capital Markets Project and associate professor of finance at Pepperdine University’s Graziadio School of Business and Management, “they will have more discretionary money to spend thereby stimulating our economy.”

Image by Flickr user Philip Taylor PT (Creative Commons)

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Posted in Capital Access, Small Business, small business | 3 Comments »

Small Businesses Seeking Fast Cash Turn Away From Traditional Lending

May 8th, 2012 ::

By Karen Axelton

Small business owners in a hurry for funding are increasingly reluctant to apply to banks for financing for their small businesses, the Merchant Cash and Capital Small Business Finance Survey found. According to the study, many small businesses are not bothering to apply for financing from traditional lenders because they didn’t think they’d be able to qualify. Others were reluctant to apply again after having been turned down for financing in the past.

The study polled entrepreneurs who had applied for a merchant cash advance from Merchant Cash and Capital, a merchant cash advance provider, and found that 42 percent of respondents who had applied for their first merchant cash advance did so because they didn’t think they could qualify for a traditional bank loan.

More than half (57 percent) of those surveyed said they had applied for a small business loan in the past. However, a whopping 76 percent described the process of getting a small business loan from a traditional lender as either “difficult” or “extremely difficult.” And of the 57 percent who had previously applied for a small business loan, 80 percent said they were either declined or had withdrawn their application.

Merchant cash advance companies such as Merchant Cash and Capital provide unsecured financing for businesses including restaurants, retail, service, legal, medical, franchises or ecommerce businesses. The money can be used to cover needs such as inventory, cash flow, expansion, overdue payments and more.

The survey found that small business owners typically use merchant cash advances for short-term needs, including purchasing inventory, payroll, paying taxes or bills, and marketing. Financing expansion was another popular use for the funds.

Clearly, when small business owners are seeking sources of capital quickly, they aren’t looking to traditional lenders as often as they used to. “It’s no surprise that small businesses are suffering from an extreme lack of available financing from traditional lenders and their tight qualifications,” said MCC President and CEO Stephen Sheinbaum in announcing the survey results, “but the depth to which the problem has gone should be of great concern.”

Image by Flickr user myphotosshare blogspot (Creative Commons)

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Posted in Capital Access, Raising Capital, Small Business, small business, Uncategorized | 4 Comments »

Small Businesses Still Struggle to Obtain Access to Credit

February 7th, 2012 ::

By Karen Axelton

Nearly four years after the nation’s financial meltdown, small business owners seeking financing find themselves between a rock and a hard place. Some 90 percent of small business owners say availability of credit is still a problem for small business, reports a new poll by the American Sustainable Business Council, Main Street Alliance and Small Business Majority. The survey of more than 500 small business owners found that 60 percent of small employers have personally faced difficulties trying to obtain loans to grow their businesses.

Getting capital wasn’t always such an issue for entrepreneurs. A 61 percent majority of respondents say it’s harder for them get loans now than it was four years ago, with 29 percent saying it’s much harder. Only 9 percent of respondents say it’s gotten easier to get a loan.

What do small business owners think would help ease the credit crunch? Some 90 percent of business owners support regulatory changes that would make it simpler for community banks and credit unions to lend to small businesses. Another 77 percent support providing incentives for community banks to lend more to entrepreneurs. Specifically, by more than a 2:1 ratio, small business owners support encouraging credit unions to lend more to entrepreneurs by increasing their member lending cap from 12.25 percent of their assets to 27.5 percent of their assets.

A large majority—82 percent of respondents—also supports tighter credit card regulations, such as clearer disclosure of terms and caps on interest rates. In addition, nearly half, or 47 percent, strongly support these kinds of regulations. The survey also found that 52 percent of small business owners have used credit cards to finance their own business.

Another way small business owners think loans could be made more accessible is by reducing collateral requirements. One-fourth of those surveyed have used their homes as a source of capital for their business through a home equity line of credit. With home equity values dropping in many parts of the country, this type of collateral is no longer available to many entrepreneurs.

Finally, the majority of small business owners, or 57 percent, think that reducing the principal on underwater mortgages to the homes’ current market value would boost consumer spending, which would help small businesses regain market share. Nearly three-fourths (73 percent) said the fallout from the mortgage crisis has hurt their businesses by reducing consumer spending and demand.

The poll also asked respondents about some specific proposals put forth in President Obama’s American Jobs Act. The vast majority (69 percent) supports committing $50 billion to new and existing infrastructure projects—such as making improvements to road, bridge and water systems—that would generate new jobs and help increase consumer spending. Another 59 percent favor creating a nationwide wireless network and improving the accessibility of high-speed wireless services, which would benefit both businesses and consumers.

Read the full report here.

Image by Flickr user Rojer (Creative Commons)


 

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Posted in Capital Access, Raising Capital, Small Business, small business | 5 Comments »

Small Biz Resource Tip: Multifunding.com

January 19th, 2012 ::

Multifunding.com

Is your bank small business friendly? Do you want to find out all your options for a small business loan? Multifunding.com was founded by Ami Kassar, a leader in financing for small businesses, and was created to help entrepreneurs find the best financing options available on an individual basis. Applicants simply call to describe their financing story; Multifunding will create a proposal with the best possible options for you. If you decide to move forward, Multifunding will help you create the best possible application and walk you through the loan process. You don’t pay unless you get the loan. Plus, a new tool on Multifunding.com grades 6,800 banks across the U.S. using data from the FDIC.

 

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Posted in Capital Access, Raising Capital, Resources, Small Business, small business | 1 Comment »

Small Biz Resource Tip: FastUpFront

July 18th, 2011 ::

FastUpFront

All business owners face a time in their careers when they need an influx of cash—fast! Whether a sought-after location opens up, or a major piece of equipment needs replacing, getting a quick loan can be stressful if your credit history is a little shaky or the repayment terms don’t meet your needs. FastUpFront offers small businesses access to money based on the business’s future credit card sales. To get the cash advance businesses must be U.S. based, must already be established and cannot be home-based businesses. Approval can take less than 24 hours and funding can be as fast as 48 hours.

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Posted in Capital Access, Raising Capital, Resources, Small Business, small business | No Comments »

Getting Business Credit Still Difficult for Small Businesses

July 14th, 2011 ::

 By Maria Valdez Haubrich

Small business owners’ access to capital is still being squeezed, it seems. Entrepreneurs’ ability to get credit when they need it is easing somewhat, but is still in decline compared to pre-recession levels of access to credit, according to the most recent Wells Fargo/Gallup Small Business Index survey.

In the survey, conducted in April, slightly fewer small business owners say credit is difficult to get now than in recent years. However, nearly three times as many say credit is difficult to get compared with the number who said this in 2007.

Business owners were asked, “Over the past 12 months, how easy or difficult has it been for your small business to get credit when you needed it?” In 2007, 54 percent said it was somewhat or very easy to get credit; in 2011, just 21 percent said the same. In 2007, just 11 percent said it was somewhat or very difficult to get credit; in 2011, that figure had risen to 30 percent.

On the positive side, the percentage of small businesses describing access to credit as somewhat or very difficult declined from 35 percent in the prior survey. On the down side, the percentage saying credit is somewhat or very easy to get has remained largely unchanged since mid-2009.

Gallup notes that the collapse of the U.S. housing market continues to be a major factor in small businesses’ problems accessing the credit they need. Before the recession, many small business owners used their homes and real estate to secure business loans and lines of credit. The collapse of home values, which still haven’t rebounded in most parts of the country, combined with tighter lending practices on the part of banks, has virtually wiped out many small business owners’ only source of collateral. In many cases, this is making it nearly impossible to get a business loan or line of credit. “Returning housing to price stability or better is a key to returning easier credit to the nation’s small businesses,” Gallup concludes.

How has the housing collapse affected your business’s credit-worthiness? Are you having trouble getting what you need?

Image by Flickr User Let Ideas Compete (Creative Commons)

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Posted in Capital Access, Raising Capital, Small Business, small business | 1 Comment »

Small Business Access to Capital: What’s the Problem?

July 7th, 2011 ::

By Karen Axelton

In late June the House Committee on Small Business held a hearing to explore the state of small business financing. The Policy Dialogue on Entrepreneurship blog reported on the hearing:

Delivering a summary of his report on the State of Small Business Access to Capital, Treasury Secretary Timothy Geithner noted that lots of small businesses were concentrated in areas related to real estate and construction—the industries hardest hit by the financial crisis.

Geithner reiterated how the Small Business Jobs Act of 2010 aimed to provide small business with more access to capital through:

  • modifications to the SBA Capital Access Programs
  • a State Small Business Credit Initiative
  • creation of the Small Business Lending Fund (SBLF)

The two latter initiatives were aimed at improving the amount of capital available to community banks and encouraging them to lend to small business. However, much of the hearing focused on why these efforts don’t seem to have led to results and why small businesses are still struggling to get capital they need. The Committee chair, in particular, noted that there’s a gap between banks having plenty of money to lend, but small businesses saying that they still can’t get money from banks.

Responding to the questions, Secretary Geithner said that the Obama Administration is undertaking a five-point strategic plan to help small businesses expand and invest:

  1. Providing significant tax relief targeted to small businesses
  2. Helping small businesses obtain access to working capital on more favorable terms
  3. Regulatory reform, which includes a government-wide review to address regulations that hinder small businesses
  4. Increasing federal contracting options for small businesses and improving their access to procurement opportunities
  5. Programs to help small businesses access foreign markets and compete overseas

Will these efforts help? It remains to be seen.

Image by Flickr user Cliff 1066 (Creative Commons)

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Posted in Capital Access, Raising Capital, Small Business, small business | No Comments »

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