The problem, as with most problems of this sort, starts with the banks. Underwriting loans is a costly venture, and small business presents the banks with a conundrum; waste the time and energy needed to underwrite a small loan or spend that time and effort underwriting a larger, more profitable and stable loan. It’s not exactly that the banks don’t want to loan the money, but rather they reserve their time and effort for those loans that promise a bigger return.

In order to offset the amount of time and effort to underwrite a small loan banks have had to fall back on a shortcut that has proven quite unreliable; using the personal credit history of the individual to qualify the small business owner for a loan. It’s fast and much less expensive, to be sure, but it’s also an extremely imprecise and inefficient measure of the creditworthiness of a business. In fact, in many cases it has caused a loan denial even when the actual business was financially healthy.

Furthermore, while this saves time for the banks it still takes a lot of effort on the part of the small business owner to complete what are usually lengthy and involved loan application packages, something that they usually doesn’t have enough time to do as they’re busy running their business.
Technology has been slow to aid in this banking challenge, even as it has aided the small business owner immensely in other ways like accounting and inventory. However this is beginning to change as recent innovations have emerged that can help banks to see the true financial health picture of a small business more fully. Programs that allow electronic aggregation of data from on-line banking, merchant processing, accounting programs and even social media have arrived that can give a much more accurate financial profile of any small business.

Business owners are benefiting also with programs to aid with those complicated loan packages and others that make it possible to present their applications to multiple banks at the same time. This has also cut down on waiting time for loan approval in some cases from months to weeks.

In short, while the system still has some major flaws there is light at the end of the tunnel. That’s good news for small business and good news for America, because when small business is happy, America’s happy.

We see many different types of companies here at Cash Federal and one mistake A LOT of business owners make is they apply to borrow money too late.

This week we funded $25,000 to a retail shop that I think serves as a perfect example of WHEN to borrow funds.

Jake (my alias for him) had increased his sales staff last fall anticipating the growing consumer demand for the holiday season.  He did well but unfortunately those added expenses where a drag on cash flow in the first quarter when sales dipped more than he expected.  That cash flow crunch caused some difficulties and he had to personally juggle funds causing a few late payments on his PERSONAL credit cards and his mortgage.  Jake was never late on his business accounts, but seeing sales rebound he came to Cash Federal to borrow some funds.

We were able to fund $25,000 which Jake used to pay his personal expenses and give him a cash cusion for the summer knowing that he will repay the loan prior to Q4 this year with the increase in sales this summer.

Far too often a small business owner applies to borrow money too late, after their personal AND business credit is impaired.  We have programs to help these business owners also, however there are less options and choices for them.

In this case, Jake’s decisive moves to insure his business SAVED him money, rather than borrowing too late.  Don’t forget, if you apply and are approved you can still decide to NOT take the funds later!

Keep growing America!!!