Small Business Owners Turn to Alternative Lenders After Real-Estate Bubble Bust According to Wall Street Journal
One of the best parts of my job is getting to educate small business owners on their finance options, so I was thrilled when I was recently asked to share my expertise with The Wall Street Journal on alternative lending solutions for businesses. In today's Money Hunt column, Emily Maltby explores collateral woes for business owners seeking loans.
Highlights from the article are below. And you can read the full article here: Real-Estate Bust Hurts Lending for Little Guys
Since the mortgage meltdown, business owners can no longer reliably count on homes or commercial properties to secure financing.
Business owners who don't have sufficient collateral in homes or commercial properties to satisfy banks are also turning to alternative lenders for asset-based loans.
A drawback: Such lenders generally exert a certain degree of control over the business's assets and can seize them if the borrower misses payments. For example, an owner may find that a client's payment must first be deposited into an account controlled by the lender, who will transfer the money only if it's deemed adequate in relation to the amount borrowed. But "alternative lenders are a little less stringent on the cash flow and may allow for tighter margins," says Jeffrey Sweeney, CEO of U.S. Capital Partners, an alternative lender in San Francisco. "It's a bridge back into traditional lending."
While people may leverage their personal assets for personal purposes – and then use those funds for their businesses, personal collateral is not typically a major criteria for business loans. The emphasis in small business lending is moving towards underwriting and credit analysis to make sure businesses can pay loans back.
In addition to looking at ability to make debt service, lenders will be looking at business viability. They will want to know if the business has cash flow or assets (accounts receivable, inventory, purchase orders, buildings, machinery and equipment) to prove ability pay back their debit. Pay back through operations – not personal collateral - is what's critical for business owners seeking commercial bank loans.
And for those looking for a bridge back to traditional bank loans, you can read more about Alternative Financing Options for Securing Small Business Loans for Working and Growth Capital.
Since 1998, US Capital Partners has been providing prompt, innovative, and reliable financing solutions including lending, corporate financing, and debt re-structuring to businesses across the United States and abroad. If you are looking for financial support, visit US Capital Partners, LLC. at http://www.uscapitalpartners.net/ or call (415) 882-7160.