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Merchant Cash Advance vs. SBA Loan
The Small Business Association is an important part of the American business environment. The SBA is a reliable advocate of small business owners across the country and has done much to serve its constituents.
Nevertheless, small business owners in need of cash should carefully consider their financing options, and not simply gravitate towards the SBA as a perceived savior.
SBA Loans Are High-Risk for the Lender (And, Potentially, the Borrower)
The first thing to realize about an SBA loan is that the funds come from a bank. The loan is originated and facilitated by the SBA, but a bank lends the actual funds.
When a bank lends funds, especially now, when banks have so many non-performing debts on their balance sheets, a bank expects to be paid back. Of course this is understandable, but it can also prove extremely problematic for a small business owner who finds herself on the wrong end of an economic downturn.
Certain small businesses that were doing great during boom times are hurting the worst during this recession. Specialty sporting goods retailers, for example, are suffering badly from the drop in consumer disposable income.
The problem with an SBA loan is that there is really not much room for negotiation after the loan has been granted. The bank has its set repayment schedule, and that is that. Dont pay and the may seize the assets of the business--game over.
According to recent statistics, SBA loan defaults are on the rise in a major way, approaching 12 percent. The Obama Administration is trying to address this issue, but the fact of the matter remains: a small business owner that has minimal sales has minimal chance of paying back her SBA loan, and its downhill from there.
Such as: banks often have the right to go after the personal assets of the small business owner, in order to recover the debt--including house and car.
A Merchant Cash Advance Can Serve as a Bridge
Retailers and restaurant owners who are wary of staking their personal possessions on the success of their businesses, then, are inherently wary of incurring more debt, whether that debt comes with the SBA imprimatur on it or not.
At the same time, such small business owners are not the giving up types. The question is: Where does the money for tomorrow come from, because as of now, its not coming from the customer?
Small business owners hearing that question ringing in their ears are well-advised to at least consider obtaining a merchant cash advance. A merchant cash advance can serve as a much-needed bridge across troubled economic waters. Yes, merchant cash advance repayment rates can eat up a good portion of this months credit card sales and impact profit margins, but:
If there is no specialty sporting good store, if there is no family restaurant, there are not going to be any monthly credit card sales and there are not going to be any profit margins to worry about.
Through the wise use of a merchant cash advance, the small business owner may survive long enough to enjoy those worries once again.