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Merchant Cash Advance – Considering an SBA Loan? MCA May be a Better Choice in a Tough Economy

The Small Business Association (SBA) has done a lot for the growth of small businesses and is a reliable support for them. The SBA offers loans to finance small businesses that are unable to secure loans on reasonable terms from traditional financing sources.

Small businesses were flourishing before the economic slump hit them. Consumer’s disposable income was high, sales were up and businesses maintained optimum stock levels. Now, consumers are holding on to cash and businesses are stuck with their inventory. Money is required to continue operations, but is no longer forthcoming from customers.

Many small businesses are getting SBA loans to stay afloat until times get better. However, the SBA does not have funds of its own. So, where does it get the money for the loans? That is where SBA loans can become risky for small business owners.

Risk of SBA loans

Funds lent out in the form of SBA loans are really being financed by banks. The SBA is only the originator and facilitator of the loan. This means that the SBA loan carries the same risks as a bank loan.

Bank loans once lent have to be repaid and there is no chance for renegotiations. Banks are particularly tough now as they are already facing loan defaults and cash deficit. Businesses going through a financial low face heavy penalties on late payments. The bank has the legal right to recover the debt from the business owner and can take over personal assets in case of non-payment of the loan.

In February 2009, CNNMoney.com reported that SBA loan default has risen to 11.9% in 2008 from about 2.4% in 2004. Though the government is trying to address this problem, there is not much to be done when a firm is unable to do sufficient business to repay its debts. The bank has no option except to seize the personal collaterals of the business owner, such as residence, car, etc.

Merchant Cash Advance (MCA) finances without collaterals

The SBA may not approve of MCA providers, but MCAs can pull a business back on its feet. Survival of the business is paramount and MCA provides the finance when the business needs it most and does not have many other options.

Businesses can apply for an MCA and get the cash approved anytime between 2 days to 2 weeks. There are no personal collaterals or lengthy paperwork involved. The business sells a percentage of future credit card receipts to the MCA provider in exchange for the cash advance.

The reduction in credit card sales will definitely affect the bottom line of the business for some time, but at least the business is still standing. A clear plan on repaying the business cash advance as soon as possible will reduce the overall cost of the advance to the business.

It is recommended that small business owners facing financial deficit, consider taking out business cash advance rather than an SBA loan. Current interest rates on bank loans have reached a high and with the lack of flexibility in the repayment model, banks are no longer the best financing sources. Business cash advance providers offer fast and timely service to give businesses a second life. Though the cost of the business cash advance is high, it can be reduced through careful planning.

Related articles

• A Merchant Advance and Other Creative Business Financing Solutions (dohertyassoc.com)
• Business Stimulus: Pay Less for Small Business Loans (turbotax.intuit.com)
• Lloyd Chapman: Supreme Court May Hear Case on SBA Phone Records (huffingtonpost.com)
• Business Cash Advance – Can You Believe You are Only Three Simple Steps Away From Approval? (encourageblogging.com)
• Small Business Jobs Act (dohertyassoc.com)
• Jerry Chautin: SBA’s New Web Site Is a Clunker (huffingtonpost.com)
• New small business loans approved in ‘minutes’ (money.cnn.com)

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Tags: Bank, Business, Collateral (finance), Credit card, Finance, Loan, Merchant Cash Advance, SBA, SBA Loan, Small Business

Business Development Program for Small Businesses

SBA Proposes New Regulations to Strengthen the 8(a) Business Development Program for Small Businesses

The U.S. Small Business Administration this week announced proposals aimed at strengthening opportunities for disadvantaged small businesses to benefit from its 8(a) Business Development program.

The proposed 8(a) regulation changes are the result of the first comprehensive review of the 8(a) program in a number of years and were published today in the Federal Register. The rules cover a variety of areas of the program, ranging from providing further clarification on determining economic disadvantage to requirements on Joint Ventures and the Mentor-Protégé program. The public comment period on the proposed changes is open for 60 days.

“The 8(a) program has a proven record as an effective program for helping disadvantaged small businesses gain access to training and contracting opportunities to help them grow, create jobs and ultimately succeed in the marketplace once they graduate from the program,” SBA Administrator Karen Mills said. “These proposed changes build on that foundation of success, and will strengthen the program and maximize its benefits for eligible small businesses.”

The 8(a) program is a nine-year business development program for small businesses that fit the SBA’s criteria of being socially and economically disadvantaged.  The 8(a) program helps these firms develop their business and provides them with access to government contracting opportunities, allowing them to become solid competitors in the federal marketplace.  It also provides specialized business training, counseling, marketing assistance and high-level executive development to its participants.  In FY08, small businesses received $16.1 billion in 8(a) contracts.

Some of the components of the 8(a) program that the proposed changes will affect include:

• Joint Ventures – qualifying that 8(a) firms are required to perform a significant portion of the work to ensure that these companies are able to build capacity;
• Economic Disadvantage – providing more clarification on economic disadvantage as it relates to total assets, gross income, retirement accounts and a spouse of an 8(a) company owner in determining the owner’s access to capital and credit;
• Mentor-Protégé Program – requiring that assistance provided through the Mentor-Protégé relationship is directly tied to the protégé firm’s business plan;
• Ownership and Control Requirements – providing flexibility in admitting individuals of immediate family members of current and former 8(a)participants;
• Tribally-Owned Firms – seeking public comments on the best way to determine whether a tribe meets the criteria of being economically disadvantaged for the 8(a) program;
• Excessive Withdrawals – amending regulations on what is considered excessive as a basis for termination or early graduation from the 8(a) program; and
• Business Size for Primary Industry – requiring that a firm’s size status remainsmall for its primary industry code during its participation in the 8(a) program.

Small businesses may submit comments to this proposed rule on or before Dec. 28, 2009, to www.regulations.gov, where they will be posted or mailing them to 409 3rd St. SW, Mail Code: 6610, Washington, DC  20416 or via e-mail at:
8aBD2@sba.gov.

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Tags: Business Development, Business Development Program for Small Businesses, disadvantaged small businesses, SBA, Small Business Administration, small businesses