SBA Loan Article Indicates More Opportunity For Alternative Financing Such As The Merchant Cash Advance Product

According to a recent article on CNNMoney.com, titled A grim year for small business lending, "The SBA Loan volume plunged 36% in 2009 as banks slammed their vaults shut to small businesses."

This is yet another example of how an alternative financing program such as a merchant cash advance is starting to be looked at by business owners who in the past utilized traditional loan products such as a SBA loan or a small business unsecured line of credit from their bank.

As the media is reporting time and time again, small businesses can not get access to the necessary capital they need to drive their business. This will lead to an increased opportunity for those in the merchant cash advance industry as we are starting to see an increase in applicants who in the past utilized their local bank as their source of capital.

Furthermore, the lack of traditional loan products readily available in the marketplace can be a tragic situation for many small businesses if they can not get access to capital for the upcoming holiday season - which can amount to 50% - 75% of many retailer's annual sales.

It will be interesting to see the demand levels in the coming weeks for the merchant cash advance product as retailers looking to borrow from their banks are being shut out.

SBA Loan Defaults Increase - A Lesson To Be Learned For Merchant Cash Advance Providers?

While a merchant cash advance is not a loan product, the SBA does cater to a similar audience as the MCA industry. Here is an interesting article that indicates SBA loan defaults have JUMPED from 2.4% in 2004, to 8.4% in 2007 to 12% in 2008 (11.8% to be exact).

The scary part is a direct funder of an alternative financing product such as a merchant cash advance product can not make money at 12%, how can the provider of a low margin product such as an SBA loan survive? I guess they can't.......

One key difference, when a business defaults on a SBA loan product, the business owner personally guarantees the loan in most cases and leaves their personal assets exposed. With a traditional merchant cash advance product (Factoring future credit card receivables), the merchant cash advance provider writes off the future receivables purchased from a business that legitimately goes out of business.