Financing For Small Businesses-Options If You Don’t Accept Credit Cards


The last two years have been a long road for those entrepreneurs seeking funds for small businesses. Many firms have seen their bank credit lines canceled or withdrawn in the face of tightening underwriting regulations and the reluctance of banks to lend despite the cheap money the government has made available.

The first best choice for any business is an SBA 7a loan. This is the most versatile loan that the SBA currently guarantees and is designed to meet a variety of business purposes. The new bill passed by Congress was designed to help the variety of these loans available by raising the government guarantee against default to 90% of the funded amount for many types of businesses. The unfortunate reality for many businesses is that many banks and non-bank lenders are not lending or approving loans, even with increased government support. Because the SBA does not actually make any loans, but only guarantees them against default, the end lending decision rests with the bank. The government cannot force them to make loans.

Businesses who are in need of replenishing their working capital or in need of getting a small business loan have largely been abandoned by traditional large banks. As confidence in the small business sector has waned, few lenders have the know-how to underwrite and effectively manage default risk in today’s uncertain environment. In some cases, credit unions have stepped in to fill the void with a more member-centric approach for those businesses that are in their member base. Usually, the rates and terms of these loans are extremely competitive in comparison to most of the sources of capital.

Another option for businesses is the merchant cash advance that is marketed by different payment processors as well as merchant cash advance companies. This option has the flexibility of being able to handle a variety of credit situations. This type of capital is not a true business loan, but rather, an ‘advance’ on future credit card receivables purchased at a discount to their actual value. An example would be a company “advancing” $75,000 and collecting back $100,000 worth of credit card revenue. As you can see, the effective rate is 25%. Because cash advance loans are not regulated as true loans, there is usually no upward legal limit on the amount of interest they can collect, unlike a traditional business loan. In many cases, merchant cash companies will charge rates as high as 50% and require a company to switch their credit card processor.

Luckily, there are new cost effective and flexible options available for businesses that use credit cards, or operate on a cash basis, or a combination of both. While no one size fits all lending option that is perfect for every scenario, businesses should take the time to consult with an expert prior to making any move. Any type of business company finance is a lasting decision that can have permanent consequences, and should be taken with understanding and caution, even if the situation is urgent.

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