There have been conflicting reports as of late regarding small business loans.
For instance, Experian and Moody’s Analytics recently released their Small Business Credit Index report, stating that conditions improved during the second quarter of the year.
“[The index] gained 2.4 points to hit 112.2 from a revised 109.8 (previously 110.5) in the first quarter,” the organization’s said. “The index measures credit quality for firms with fewer than 100 workers, and last quarter’s move puts it at an all-time high.”
In short, it looks like small business borrowing activity is making healthy strides. However, a separate report tells a different story.
The latest edition of the Small Business Credit Survey released by the Federal Reserve Bank of New York, which highlights businesses in New York, New Jersey, Connecticut and Pennsylvania, shows that while loans for $1 million or more are on the rise, credit applications for amounts below this are stuck at 2005 levels.
Cost is obviously an issue contributing to this, as 40 percent of companies stated they encountered increasing financing costs. And it’s smaller businesses who are being hurt, of the companies seeking credit in the survey, 81 percent were looking for $500,000 or less.
Most damning of all may be that lack of credit availability was cited as the second-biggest challenge for businesses during the previous year, very narrowly beaten out by difficulty attracting customers.
“Banks tend to make it easier for larger companies to get credit, and often smaller companies don’t have the track record or time to spend to apply for credit,” Matthew Carey, director of the Center for Financial Market Studies at Iona College, recently told the Fairfield County Business Journal.
Carey went on to say businesses need to understand the difference between access to credit and traditional bank loans.
“When people talk about credit nowadays, it’s important to talk about these new alternative sources of funding as well,” he said.
Utilizing the alternative
One alternative option small businesses may want to explore is a business cash advance. Unlike traditional financing options that include complicated approval processes, long waiting periods and high interest rates, a cash advance could provide businesses with the money they need immediately.
Even better is that options exist where the advance is only repaid by future credit card sales through an automated process that retrieves a small fixed percentage of a business’s daily transactions.
In this way, businesses don’t have to repay the advance until they get paid.