Working-capital loans for today’s retail businesses are increasingly difficult to come by. While there is significantly talk regarding helping “main street” within the media and politics, the the fact is that the most cost effective working capital for business is definitely an SBA or Bank loan. Unfortunately, the restricted credit environment through which we find ourselves means the majority of these loans are not being approved for the retail businesses that need them most.

This leaves many retailers in the unfortunate position of going with a merchant cash advance from their credit card processing company. These cash advances for working-capital tend to be billed as “convenient” and “unsecured” ways for company owners to get “quick cash”. The fact of the matter is, most cash advance companies do secure their loans via a UCC filing against the business. While it may not be within the owners personal credit, for many small retailers, having a UCC filing against their business just isn’t much different. It’s a lien that is placed on the business until the advance is repaid.

What is usually left out is that cash advance businesses are not regulated by the government as loans. It means that they can be free to charge rates of interest, or factor rates, of 50% or higher. Even on a short-term working capital loan, this is a staggering amount of interest. Oftentimes, because it is not a true loan, the MCA company has the choice of changing the rate at any time throughout the repayment process. These advances will often be described as high upfront fees, and also the requirement to switch payment processors and/or buy new equipment from the provider. They additionally may have high “holdback” or daily payment rates that represent a real burden for many companies.

For most cases the active commercial loan companies because of this specialized type of commercial funding are limiting working capital loans to businesses that are current in their debt payments and are showing a net profit (based upon recent bank statements). If both of these conditions are met, new commercial loans can frequently be obtained to refinance lines of credit and term loans which have been cancelled or recalled by many loan companies. For businesses not qualified for commercial financing using these two requirements, there are actually alternative funding sources for example business cash advance programs.

Many small business loans business owners also count on personal lines of credit to finance some of their business operations. There happen to be many reports of widespread cancellations and reductions of these lending programs as well, especially those involving loan companies which have received a multi-billion dollar cash infusion from United States taxpayer money that was intended to facilitate the lending of money to businesses and consumers.

Personal and business lines of credit are already eliminated in lots of cases by lenders due to a reduced ability to pay by borrowers and deteriorating business conditions. As reported in the Working capital Journal, a high number of borrowers, conversely, had a superb payment history for many recent credit line reductions or cancellations.

In the meantime, you will find banks ready to make working-capital loans. The most noteworthy examples are (for the most part, anyway) not banks which have received bailout funds. On the whole, these commercial lenders have been willing to provide working-capital financing, either in the form of new business financing or refinancing lines of credit and term loans that have been recalled or cancelled by other loan companies.

Because it basically indicates that bailout funds happen to be given (so far) to lenders who primarily have a history of making bad loans (virtually all lenders receiving bailout funds to date), the lending activities described above are a serious concern to many observers. At this point, little attention has been given to lenders with a healthy balance sheet in federal attempts to get more funds in to the hands of consumers and businesses.