Since the recession, the main commercial banks have tightened their purse strings when it comes to lending money to business, especially when that business is an SME. In fact, recent figures suggest that as many as eight in ten small business loan applications are being refused, with total dollar amount in loans falling by 20%.
The reasons for this situation are many. First, lending money to business is inherently risky, yet underwriting loans costs the same for a $10,000 loan as it does for a $1 million one. Since the profit on bigger loans is that much higher, there is little incentive for big banks to provide unsecured financing (or even secured loans) to smaller businesses. But it’s not just profiteering that is behind the banks’ attitudes: it must be remembered that banks are lending out other people’s money, and so they have a responsibility to vet those businesses that they are lending too.
Another reason why fewer banks are lending money to business is that many smaller community banks have been taken over by larger financial institutions. The days of building close ties with your bank manager are all but gone.
Maybe you Need to Look Elsewhere
It’s not all doom and gloom! The beauty of today’s financial services marketplace is that as soon as an opportunity arises in a niche, in come businesses to take advantage. This has led to the creation of innovative, SME-friendly solutions such as the cash advance loan. A cash advance loan is a type of ‘alternative lending,’ but that doesn’t mean there’s anything mystic or risky about it. Alternative lending simply means lending that does not involve a bank or major financial institution.
Speed Fund LLC are one example of a business that is reaching out to provide unsecured financing to SMEs in the form of a cash advance loan. A cash advance loan is a short-term loan that has more in common with an advance than a traditional bank loan, hence the name. For example, there is no interest to worry about: instead of charging a percentage of the capital, Speed Fund LLC will negotiate a fixed price for the advance. There is no ‘compounding’ of interest or other obscure financial considerations; you simply pay back the advance and the fee.
The real beauty of the cash advance loan is the business-friendly way in which that advance and fee are paid back.
When banks are lending money to business, they look at the credit history of that business, as well as its current performance, and set an interest rate that reflects the risk they are taking in granting the loan. In fact, the risk to the bank is often non-existent since the loan is secured on the business collateral and is often guaranteed by the company’s directors too. If the business has a poor month, or season, it’s tough luck – the fixed repayments stay the same and the business owner sinks or swims.
Contrast this with a cash advance loan. First, the advance is unsecured financing, which means that whatever happens with repayments, the business owner need not worry about losing his or her premises or equipment. Second, the repayments are tied into the business’s turnover. By taking a small percentage from each credit or debit card sale, repayments rise and fall with business performance. In good times, the advance and fee are settled sooner whereas in lean periods the loan is drawn out longer. Either way, there are no sleepless nights.
More Options with Speed Fund LLC:
Not all providers of cash advances are the same of course, and Speed Fund LLC offer additional flexibility for those businesses who need some unsecured financing but prefer to know exactly how long their loan will take to settle. In this case, Speed Fund LLC can agree fixed repayments, much like a traditional business loan.
To answer the question posed in the title of this article, if it is becoming hard to access credit, particularly unsecured financing, through the bank it may be time to consider other options. A cash advance loan could provide the cash injection you need while preserving your peace of mind.