Small Business Financing and Franchise Financing Blog

Small Business Loans – When Will the Environment Improve?

Monday, August 31
By Todd Taskey

When Will the Small Business Loan Environment Improve?

This is a valid question if you are an economist wondering when the macro economic environment will improve. If you are a small business owner looking for working capital or a business loan, it is irrelevant.

Better questions: Can I get approved for a business loan and how?
In case you have economic tendencies, let me answer the first question bluntly; Not soon. As I stated in an earlier post, there are many reasons why ARC loans will not work well for small business owners. Most of the comments on from this post are from business owners declined for an ARC loan.

Additionally, The largest lender to small business owners for each of the past 9 years has been CIT Small Business Lending Corporation. CIT is a bit distracted these days trying to avoid bankruptcy. Regardless of their advertising and rhetoric, Bank of America has made just 484 loans for $20 million in the 12 months ending April, 2009. Are you kidding me?

So, will the SBA come to the rescue with a SBA 7(a) loan? Would you if it was your money? Consider the SBA recorded $2.1 Billion of bad small business loans in 2008, double their previous record. Small business failures are climbing and payments are becoming more delinquent. Don’t expect the SBA to flush more money down the toilet by lending to companies that should not be in business anyway. Their lending dropped 30% in the past quarter

So, how about some good news? As the month of July comes to a close, we’ve helped real business owners of almost every credit profile, with the following funding. I offer this not to pat myself on the back but to offer evidence of real businesses I know received real money.
Golden Coral in Midwest received $140,000 on 7/28/2009.
Family Rehab Center in California received $100,000 on 7/30/2009.
Cigar Bar in Florida received $60,000 on 7/11/2009.
Internet Service Co in California received $95,000 on 7/21/2009
Ihop Restaurant in Idaho received $65,000 on 7/7/2009.
Mexican Restaurant in Mass received $40,000 on 7/16/2009.
Chiropractor in Virginia received $30,000 on 7/19/2009.

All of these companies received small business financing because they were focused on the "micro economic" issues of their business. Business credit score, time in business, revenues, timely vendor payments, current mortgage payments, etc. These factors make business loans available. In any business lending environment, loans get made to qualified business owners. Focus on being one of them and you’ll find that money is available for growth or cash crunch regardless of macro economic circumstances.

Todd Taskey has over 20 years experience helping small business owners be more effective financially. After 17 years as a Certified Financial Planner, Todd is now a Principal at Potomac Business Capital, an independent firm that helps arrange working capital and business financing through SBA loans, private equity, business cash advance, equipment leasing, traditional loans and other creative financing. Located in Bethesda, MD, he serves clients natiaonally and also blogs for Business Management Daily and Wrong Question.

Do Small Business Loans Work for "Real" Small Business Owners?

Wednesday, August 26
By Todd Taskey

Why Small Business Loans Don't Work for "Real" Small Business Owners

There are multiple reasons, and if you have every looked for working capital or a small business loan for your business, you know how frustrating the process is. Today is even more difficult.
However, once you become a business owner, the challenge becomes even greater. Your credit score typically drops, debt load increases and your attractiveness to traditional lending and credit companies drops like a rock. that, combined with a very tight credit market is putting the squeeze on millions of business owners.

My last post discussed why you can not rely on the ARC program, however, you need capital to take advantage of an opportunity or get through a rough patch.
So, let’s ask a better question: What really works?

Access to small business working capital is constantly changing and two of the most popular form initial equity capital that fueled small business growth are now effectively closed. Business Credit Cards and Home Equity loans have all but dissapeeared durning this credit crunch. Access to small business capital was a problem in September 2008 and working capital is still a problem in July 2009.

As business owners are forced to become more creative, there are effective options that are getting working capital into the hands of small business owners.

Funding Program Required Credit Time in Business Potential Funding
Business Cash Advance: 550+ 1 year + up to $150,000
Streamlined Business Loan: 690+ 2 year+ up to $125,000
Equipment Collateral Loan: 660+ 1 year+ up to $1,000,000
SBA Guaranteed Loan: 675+ new + up to $1,000,000+
Business Credit Cards: 650+ Effectively Closed
Home Equity Line of Credit: 600+ Effectively Closed

Business Cash Advance is a great solution because it really works and will over look tax liens, debt load, “credit issues” and other problems traditional banks can not get past. Business cash advance offers funding without any personal guarantee or collateral, and, given they are taking 100% of the risk in the financing transaction, the cost of capital is significant. If you get a $50,000 you can expect to repay about $65,000 – $70,000 and payments will come directly from your credit card processing or bank statement. Expensive capital, but effective, quick and often successful.

Streamlined Business Loan is an evolution of business cash advance (also known as merchant cash advance). This program allows you to use a personal guarantee and cut the cost of your working capital loan significantly, perhaps as much as 40%-50%. They funding is quick (two weeks) and easy to apply for though you’ll need to have a credit score of 690+ and 2 years worth of tax returns to qualify. In many cases this option is cheaper and easier on cash flow than the business cash advance, but you need better credit and must feel comfortable with a personal guarantee.

Equipment Collateral Loan is an effective way to get a well priced loan if you own equipment (completely paid) or will be buying some soon. Either will require a personal guarantee and the equipment will act as collateral for your loan. If you are buying new equipment you can finance almost all your purchase. If you are using equipment you already own, expect to borrow about 50% of the current value of the equipment. Rates and terms are typically better than the two options above due to your good credit, collateral and personal guarantee.

SBA Secured loans (both 504 and 7A) are great loan products if you have strong credit, lots of collateral and plenty of patients. These loans are made by your local bank and the SBA will guarantee the loan in the event you default. The process is long (60- 90 days) and frustrating at times. In today’s environment they are even more difficult to qualify for but represent the best pricing you will likely qualify for.

Business Credit Cards are very difficult to acquire today and many that have been issued over the past year are being withdrawn. They are not a very good option for small business working capital in the summer of 2009.

Working capital today requires thinking outside the box, a trait traditional lenders are not know for. If you have had success with a working capital loan, please share your comments.

Todd Taskey has over 20 years experience helping small business owners be more effective financially. After 17 years as a Certified Financial Planner, Todd is now a Principal at Potomac Business Capital, an independent firm that helps arrange working capital and business financing through SBA loans, private equity, business cash advance, equipment leasing, traditional loans and other creative financing. Located in Bethesda, MD, he serves clients natiaonally and also blogs for Business Management Daily and Wrong Question.

Find Working Capital for Your Business

Friday, August 21
By Todd Taskey

I talk with business owners across the country every day who ask about the most effective way to get additional working capital (not start-up capital) for their business. In most cases we're able to help them locate the funding they need. So...question answered.

The problem is, they're asking the wrong question and getting an incomplete answer.
Better Question:

Why do I need working capital?

Business owners often ignore the underlying question when the new funds arrive. Sounds foolish, but it happens every day. Moving from crisis to crisis is no way to operate your business. You may feel compelled to douse the next fire rather than take a hard look at the more difficult strategic questions, but that merely masks long-term (more expensive) problems.

I have these conversations almost every day and notice 1) Not much has changed when I get the call looking for the next round of funding, and 2) most cash needs stem from one of the following issues just below the surface.

1) Initially under-capitalized
I spoke with the owner of a fruit bouquet franchise this morning who was searching for capital and admitted he was under-capitalized from the outset. High on expectation and optimism, he launched ahead regardless.

In 16 months of business, his credit score has dropped 140 points, which makes most traditional funding impossible. Plus he’s already sold away 25% of his future credit card sales to help make ends meet.

2) Slowing sales
The impact of 2008’s fourth quarter has slowed sales almost everywhere. So, what have you done about it? What changes have you made to cut costs, reduce inventory and pick up market share? Recessions always provide opportunities; they are just not as obvious as the downfalls. Additional capital and the impact on cash flow will not magically improve sales; that is up to you.

New capital will either reduce your equity or be a drag on what is already lower revenue.

3) Poor planning
Many national franchises require their owners to remodel their location every 5-7 years, yet this seems to “surprise” even longtime owners who scramble for the necessary funds.
A friend of mine owns several limited-service hotels, and his franchise company requires that they set aside a percentage of revenues each year for capital improvements. The reinvestment into his properties is significant, but already budgeted for in a planned, considered manner.
What are you preparing for? Whether required or not, advance planning makes you a better and more profitable business owner. “Unexpected” events are part of business and part of life — start preparing for them now.

4) Unplanned opportunity
We’re an optimistic bunch, which is probably why we’re in business for ourselves. Every time I get a call for capital because of an opportunity, I inquire if the excitement is because it offers something better or just something different.

I just spoke with a restaurant owner who has a great opportunity to take over a vacated Bennigans restaurant location at about 20% lower rent than the past tenant. So I wondered: Why did that location go out of business (the chain filed bankruptcy), what is the traffic flow to that location, and if their new concept could fill a location twice their current size, what would be the impact to their first location?

It was the first time he’d pulled his attention from the lower rent and “free equipment” to consider these issues that could put his entire company at risk. Not to mention the impact to his current cash flow and lifestyle.

Getting additional capital is never the complete solution to what ails your business. Look deeper and ask more focused, pointed questions to yield better results.

Todd Taskey has over 20 years experience helping small business owners be more effective financially. After 17 years as a Certified Financial Planner, Todd is now a Principal at Potomac Business Capital, an independent firm that helps arrange working capital and business financing through SBA loans, private equity, business cash advance, equipment leasing, traditional loans and other creative financing. Located in Bethesda, MD, he serves clients natiaonally and also blogs for Business Management Daily and Wrong Question.

Small Business Loans from President Obama's ARC Program

Monday, August 17
By Todd Taskey

I really hate to be so negative, but if we look at a couple simple facts, the entire ARC (America's Recovery Capital Loan Program) is a $350 million mess waiting to happen. This entire process is flawed from top down. It sounded good on the campaign trail (it always does), but 9 months later, what do we know?

1 - We have about 14 million small businesses (9 employees or less) in the US that collectively employ about 43 million individuals. President Obama is hoping they can help lead the way out of the current recession by providing a minuscule fraction of them small business loans up to $35,000, provided it is used to eliminate other debt.

2 – Many banks do not have the capacity to make these business loans, but more importantly, they do not want to make the loans as there is no ability to charge any fees or generate any income. It sounds great from the podium to say "no fees" but without incentive, it is just a distraction while many banks are trying to heal their balance sheet.


3 – The SBA doesn’t really want to make these small business loans. Publicly they will say differently, but the SBA loans default rate in 2006 was 2.4%, which jumped to 4.8% in 2007. 2008 saw a record of 12% default which would be a complete disaster for a lending company charging 25% interest. The typical small business loan through the SBA loan program has a current interest rate around 6%. They (we) cannot afford more losses, regardless of the rhetoric.
So, the SBA can’t afford to make these small business loans, the banks do not want to make the loans, it is not a solution for the business owner’s problem or a solution to the recession. So, why develop and promote the ARC program? Well, it allows our government to show they are responsive and the Democratic Party can appeal to the small business owner in advance of the next election. It is a shame they are willing to blow a third of a billion dollars in that pursuit.

So, that is the problem. Let's talk about solutions for business owners who need working capital or a small business loan to really grow their company. My next post will outline four real world options that usually result in a small business loan or working capital: Business Cash Advance, Equipment Lease, Secured Small Business Loan and SBA loan program.

If you have any experience with these programs, I welcome your comments.

Todd Taskey has over 20 years experience helping small business owners be more effective financially. After 17 years as a Certified Financial Planner, Todd is now a Principal at Potomac Business Capital, an independent firm that helps arrange working capital and business financing through SBA loans, private equity, business cash advance, equipment leasing, traditional loans and other creative financing. Located in Bethesda, MD, he serves clients natiaonally and also blogs for Business Management Daily and Wrong Question.