Nowadays, banks are not only tightening lending practices; they also seem to be favoring big businesses over smaller ones.
According to the Analysis of Nationwide Summary Statistics for 2007, bank lending to small firms peaked in 1999 at 60 percent. To the disadvantage of small business owners in need of big funds, in 2007, only 37 percent of business loans extended by banks were given to smaller firms.
Over the past three months, lending practices have only gotten tighter. The July 2008 Senior Loan Officer Opinion Survey states, “About 60 percent of domestic banks…reported having tightened lending standards on commercial and industrial (C&I) loans to large and middle-market firms over the past three months, [and] about 65 percent of those institutions…also indicated that they had tightened their lending standards on C&I loans to small firms over the same period.” This makes it increasingly difficult for business owners to find funds to support their businesses.
With the changing economy, credit card advances are becoming a more sought-out option for business financing, and could possibly account for the slight decrease in demand for bank business loans.
When distributing credit card advances, credit card advance companies are actually purchasing businesses’ future credit card sales for a small fee. In other words, the business owner gets money upfront, and the credit card advance company gets a small percentage of the business’ credit card sales until the entire advance has been repaid.
There are a variety of factors that make credit card advances preferable to bank business loans. With a bank, the individual merchant is responsible for repaying the loan. This causes the bank to require excellent credit, collateral, and fixed monthly payments. With any financial supplier, the likelihood of having money repaid on time is very important. Banks have no other way to ensure that they don’t lose money than imposing such stringent requirements on borrowers.
Contrarily, credit card advance companies take the responsibility of loan repayment off of the individual borrower and place it on the business. This allows credit card advance companies to be able to grant credit card advances to individuals who have less-than-perfect credit, without requiring collateral and/or fixed monthly payments. Merchants are also able to rest in the assurance that their credit card advances are being automatically repaid as they go about their daily business activities.
Credit card advances are not for everyone. If you are a non-merchant, if you are a merchant that does not accept credit cards, or if you are seeking financial support to start a new business, you may want to consider other sources of business financing. This is essentially because credit card advance companies are able to provide upfront cash on the premise that your business’ future credit card sales will cover the costs.
As a person seeking funds to start a business, there is no record of your business’ credit card sales, and no way to predict the dollar amount in credit card sales that your business will process each month. If you own a business that has been in existence for a length of time, but your business does not sale anything, a credit card advance is not an option because there will be no future credit card sales to repay your credit card advance. Similarly, if you do own a retail business but do not accept credit cards, you will not be able to receive a credit card advance. Most credit card advance companies require that your business processes a certain amount of monthly credit card sales for anywhere from four months to one year. Therefore, if you are a merchant who does not accept credit cards, but also does not qualify for a bank loan, it may be a good idea to begin accepting credit cards, and after several months of doing so, look into getting a credit card advance.