On July 12, 2010, Ben Bernanke, the chairman of the Federal Reserve, stated that "making credit accessible to sound small businesses is crucial to our economic recovery, and so should be front and center among our current policy challenges." The words come at a time when SBA Loans have virtually vanished from existence after the stimulus incentives expired in late May. The biggest efforts to spur the economy have been focused on job creation at the micro level, small businesses.
As it turns out, over $3 billion has successfully made its way to small businesses in the past few years, but not by the government or the banks. It has come from alternative finance firms that provide capital via a Merchant Cash Advance.
A Merchant Cash Advance is not a loan, but rather a purchase of future credit card sales. The business owner receives a lump sum of cash upfront and in return diverts a percentage of each credit card sale processed up until the the amount is returned to the funding provider. A fee is added to the total but the program's true allure is the flexibility of repayment. Cash is only sent to the funding provider when sales are generated. If more sales are generated, the faster the program will go. If seasonality, unexpected closures, or economic disruptions slow customer traffic, then less funds are being paid out accordingly.
Billions of dollars are being injected into the economy by privately funded firms to sustain and grow what the Federal Reserve has been trying to do all along. It seems that Mr. Bernanke is the last to know. Someone better tell him. The SBA's Asset Recovery Capital loan set aside $256 million dollars to fund small businesses last year. This is paltry compared to the capital Merchant Cash Advance providers are supplying. Additionally the ARC loans have a projected default rate of 56%. it would seem that either the loans are structured poorly or that they are going to businesses that simply weren't sustainable to begin with.
If 1 out of every 2 business defaults, then there really aren't any jobs being created, which is the whole point of the program to begin with. This also ignores the fact that this government backed ARC loan is funded on taxpayer dollars. It's discomforting to know that the government considers a program with a built in failure rate of over 50%, that has no chance of yielding jobs, and only increases the deficit, a "stimulus".
While the government is busy patting themselves on the back for blanketing the small business community with "stimulus," Merchant Cash Advance providers are witnessing their own clients prosper. Experts say the default rate is less than 12% on an industry wide scale. Most Merchant Cash Advance clients have taken advantage of the program more than once. Many businesses faced incredible challenges when the economy shifted in 2007. Merchant Cash Advances allowed them to seize opportunities they otherwise would've passed on. The access to liquid capital has paid big dividends to its users.
Every product has its nay-sayers. Those that argue a Merchant Cash Advance was a factor in their business's demise generally fail to mention that their business was on the brink of insolvency to begin with. Like any kind of financing, a Merchant Cash Advance is not going to save a dying business, it's going to allow a sustainable one to prosper.
On July 20, 2010 Fortune Magazine published an article, titled "The Fed's small business lending efforts are misguided." In it, Jim Klussman, chief credit officer of Sunrise Bank in Arizona states "If there were people to lend to, we would do it." and continues "But there aren't viable borrowers, and then we're criticized by the government for not lending enough." By viable borrowers, one can assume that he meant ones with less than excellent credit. A Merchant Cash Advance will approve business owners with FICO scores as low as 500, and sometimes even lower if they're willing to take a smaller amount.
As for their complaint about the government's pressure to lend, some things are becoming abundantly clear. Neither side is capable of accomplishing the original goal, job creation. If only there was some alternative source of capital small businesses could turn to, we wouldn't have to worry. Oh wait, there is. Someone go tell Ben Bernanke that Merchant Cash Advance providers are taking care of business.
As it turns out, over $3 billion has successfully made its way to small businesses in the past few years, but not by the government or the banks. It has come from alternative finance firms that provide capital via a Merchant Cash Advance.
A Merchant Cash Advance is not a loan, but rather a purchase of future credit card sales. The business owner receives a lump sum of cash upfront and in return diverts a percentage of each credit card sale processed up until the the amount is returned to the funding provider. A fee is added to the total but the program's true allure is the flexibility of repayment. Cash is only sent to the funding provider when sales are generated. If more sales are generated, the faster the program will go. If seasonality, unexpected closures, or economic disruptions slow customer traffic, then less funds are being paid out accordingly.
Billions of dollars are being injected into the economy by privately funded firms to sustain and grow what the Federal Reserve has been trying to do all along. It seems that Mr. Bernanke is the last to know. Someone better tell him. The SBA's Asset Recovery Capital loan set aside $256 million dollars to fund small businesses last year. This is paltry compared to the capital Merchant Cash Advance providers are supplying. Additionally the ARC loans have a projected default rate of 56%. it would seem that either the loans are structured poorly or that they are going to businesses that simply weren't sustainable to begin with.
If 1 out of every 2 business defaults, then there really aren't any jobs being created, which is the whole point of the program to begin with. This also ignores the fact that this government backed ARC loan is funded on taxpayer dollars. It's discomforting to know that the government considers a program with a built in failure rate of over 50%, that has no chance of yielding jobs, and only increases the deficit, a "stimulus".
While the government is busy patting themselves on the back for blanketing the small business community with "stimulus," Merchant Cash Advance providers are witnessing their own clients prosper. Experts say the default rate is less than 12% on an industry wide scale. Most Merchant Cash Advance clients have taken advantage of the program more than once. Many businesses faced incredible challenges when the economy shifted in 2007. Merchant Cash Advances allowed them to seize opportunities they otherwise would've passed on. The access to liquid capital has paid big dividends to its users.
Every product has its nay-sayers. Those that argue a Merchant Cash Advance was a factor in their business's demise generally fail to mention that their business was on the brink of insolvency to begin with. Like any kind of financing, a Merchant Cash Advance is not going to save a dying business, it's going to allow a sustainable one to prosper.
On July 20, 2010 Fortune Magazine published an article, titled "The Fed's small business lending efforts are misguided." In it, Jim Klussman, chief credit officer of Sunrise Bank in Arizona states "If there were people to lend to, we would do it." and continues "But there aren't viable borrowers, and then we're criticized by the government for not lending enough." By viable borrowers, one can assume that he meant ones with less than excellent credit. A Merchant Cash Advance will approve business owners with FICO scores as low as 500, and sometimes even lower if they're willing to take a smaller amount.
As for their complaint about the government's pressure to lend, some things are becoming abundantly clear. Neither side is capable of accomplishing the original goal, job creation. If only there was some alternative source of capital small businesses could turn to, we wouldn't have to worry. Oh wait, there is. Someone go tell Ben Bernanke that Merchant Cash Advance providers are taking care of business.
New York City Merchant Services is a large provider of Merchant Cash Advances. Their client base extends nationwide. http://www.newyorkcitymerchantservices.com
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