In today’s restricted lending environment, many types of working capital that was available only a few short years ago have been severely restricted, or cut out altogether. Many of the larger commercial banks are “sitting on their hands” taking advantage of the cheap money provided to them under different government programs and not necessarily lending this money back out to the small businesses that have acute working capital needs.
Despite the fact the government has increased its support for the Small Business Administration or SBA, this option is still extremely hard to qualify for given today’s lending restrictions. Because many businesses are considered “credit challenged” due to the downturn, it has become increasingly difficult to replace lost lines of working capital cash that banks were previously clamoring to sign businesses up for. Indeed, the definition of “credit challenged” has drastically changed in the new, post credit crunch underwriting environment.
However, there are a few types of business loans that may be available, even if you or your business has less than perfect business or personal credit. The key to many of these loans is to have a decent credit card processing volume, a decent cash flow that is provable with bank statements, or both. These so-called merchant cash advances, which advance an amount against your future credit card receivables, are hallmarked by tremendous underwriting flexibility coupled with higher costs.
On the flip side, these cash advances are short term loans that last no longer than 12 months, with payments being made daily out of credit card proceeds. They also can handle difficult credit situations that many banks and business loan companies would not even consider, and are short term so you do not have the money out for long periods of time.
There is also a new, more cost effective option called a credit card receivable loan that can handle businesses with a predominantly cash or credit income stream and features rates that can be as much as 50% less than a comparable cash advance with no upfront fees or requirement to switch credit card processing companies, but can also handle the credit-challenged business that needs a working capital term loan that is both cost effective and flexible with regard to underwriting.
For those businesses that may own the property they are in, a commercial mortgage is a real option as long as there is a lot of equity in the property. These loans will generally have better terms than any other source of alternative business financing, but will take much longer to process and will require an appraisal to verify the value of the commercial property. Unfortunately, commercial property values are at an all-time low, so do some homework on what your property might be worth before paying for an appraisal. Speaking to a commercial real estate broker is a good way to start. However, if you own your property free and clear of any mortgage, this is a definite option for you, even if credit is difficult.
Hopefully, this brief overview if the different types of capital will get you thinking in some new directions that don’t involve getting told “no” at your local bank. If you’re looking for more information on your businesses working capital options, check out the link below for a more information.