The Numbers Are in for 2008: Business Loans Down 55 Percent

Anyone on Main Street has known this fact for the past year, but apparently it is just dawning on lawmakers and the Small Business Administration. Hopefully the incoming management of the SBA won’t be as unwilling as the Bush administration has been to accept that small businesses are in trouble in our country. With all experts predicting 2009 will be much of the same as 2008, and with banks continuing in the “cash hording mode” for 2009, where will small business owners go for capital?

The answer depends on several factors, including use of the loan and whether congress and the new administration take action to loosen the credit stranglehold on small businesses.

In discussing the later first, the new SBA administration can, with congresses help, offer a temporary 100 percent loan guarantee to banks willing to make SBA loans. With all default risk removed from banks, this should logically allow bankers to loan money under various SBA programs, particularly since they will have a 100 percent loan guarantee.

There are really no SBA programs set up for businesses to obtain working capital through SBA lending programs, the commercial finance (particularly factoring industry) is set up to fill that gap. 20 years ago, even 10 years ago, many people associated factoring, which is money loaned in a highly structured manner with businesses in trouble or going out of business. In today’s world, so many companies chose factoring for a number of positive reasons that there is no longer a stigma associated with factoring. The vast majority of companies who use this form of financing are growing too rapidly for traditional credit sources. Some have had a rough year or two but are on the rebound. Others use it to help with seasonality or the cyclical nature of their business. There are many thousands of factoring companies in the U.S. but you must be careful about who you pick to do business with. If you are seriously considering factoring to provide your company’s working capital, give us a call and we will be happy to give you some pointers on what market rates are and what kind of “land mines” to watch out for.

There are many other types of financing still available in our market including cash out commercial real estate loans, securities loans, and asset-based loans for larger customers who have strong financials.

Most importantly, don’t overlook community lenders working under the Certified Loan Development Program (CDLP). Though lending limits are low (usually around $300,000 or less), these lenders have steadily made loans to a multitude of businesses during 2008.

In many ways, obtaining capital for your business in 2009 will be like sifting the sand in riverbeds looking for gold. It is there, but you'll need a keen eye and patience to find it.