Horizon Business Funding Reports on Lack of Govt. Funding
President Obama has called Small Businesses “the backbone of our economy and the cornerstones of our communities,” However, as a result of the economic turmoil of the past few years and tighter regulations on lending, many business owners are unable to access lines of credit or loans from traditional banks. As a result, they have been forced to borrow heavily from their personal savings in order to stay afloat, often times funding the costs of running their businesses out of pocket and putting their life savings on the line. As disposable income has gone down, even borrowing from friends and family is increasingly difficult for business owners who need access to capital. To illustrate the depth of this problem, an article from the University of Missouri cites research indicating that business owners who self-fund with personal assets typically report a need for further funding to sustain their businesses. Also alarming, a Wells Fargo survey indicates that “25 percent of business owners cited limited access to credit as a core problem.”
With 1 out of 4 business owners needing loans or funding but being unable to get it from traditional institutions it is important to understand why this is the case. For one thing, Traditional Banks demand collateral for their money in some form. Valuation of this collateral takes time, and in the case of bankruptcy or inability to pay back the loan the assets put up will revert to the lender. In a Factoring deal, where a percentage of a businesses future sales will be used as payback, the actual assets for sale will revert to the Factoring agent in a worst case scenario, as they have effectively purchased them by giving the loan. In plain English, if the deal goes bad you lose your receivables.
A major disadvantage of these deals is the extended amount of time before they can be funded. Some merchants will need their money on an asap basis in order to keep their operations running, or may not have realized that they would need money in the face of an unforeseen expense. Another disadvantage is that by taking a loan against collateral a business owner is putting their assets and in some cases the very store they operate out of in jeopardy in the event of a default. Horzon is leading a new wave of funders who are addressing the lack of traditional bank funding for Small Businesses. Where normal bank loans require collateral and will deny based off of bad credit or lack of previous banking relationships, our Merchant Cash Advance program only requires bank records indicating cash flow, which we will take a percentage of as interest for our funding. This means that if your sales slow down, we will not collect or take your assets, the money is returned as you earn it back.
According to the data from this 2012 article, 80% of small businesses fail in their first year.Reasons for this cited by the article include poor inventory management that leaves business owners with a surplus of product and little to no cash reserves. These are among the types of businesses that can benefit from a Merchant Cash Advance by receiving cash that can then be paid off by sales of their surplus inventory.Small Business owners do have options outside the traditional lending sphere, where granting funding based off of minimum investment risk means those who need it most are often ineligible. A perfect example of this situation is described in this Bloomberg article on the Credit Pinch. By providing options to those looking for Bad credit Business Loans Horizon is working with this group of Small Business owners and helping them get capital.
For more great articles please visit the Horizon Funding Blog and be sure to follow us on Twitter @HorizonFunding! For Business owners interested in funding please take a look at the 100% Paperless Horizon Application.