Banks Continue to Tighten Lending
The Federal Reserve issued their findings in a quarterly report on November 3rd, 2009, that banks are continuing to tighten their lending criteria to businesses and to individuals.
Banks have done this primarily in four different ways:
1) Criteria for receiving loans and credit cards are higher for existing and new customers.
2) Reduction in credit limits
3) Increase in interest rates
4) Increase in minimum credit score for qualification
Not only have small and large banks made it more difficult for businesses to qualify and receive loans, but the actual cost of the money has increased as well.
This is more evidence for why there is such growing demand in the merchant cash advance industry. Merchants cannot receive extra working capital from their banks which they have relationships with for over twenty years. The question is, is this business practice reciprocal? Why should customers give business to banks whose main purpose is to provide merchants and individuals with loans? We see more and more merchants and individuals moving banks in search of obtaining capital. Also merchants are seeking other forms of finance including equipment loans, other types of business loans like SBA and bridge loans, commercial mortgage loans, and of course merchant cash advances.
In addition, it would be wise for merchants who are behind on their credit lines, bank loans, and bills to catch up and keep their credit in good standing by taking out a merchant cash advance against their business and pay a fixed percentage on the money they obtain. The influx in cash will provide the merchants with working capital, and they will be able to pay off bills and remain in good standing with their banks. Since the criteria for qualification for a merchant cash advance is much lower, merchants have better chances of being approved than for a bank loan. Furthermore unlike a traditional bank loan, a merchant cash advance does not appear on the merchant’s credit report and thus cannot harm it if paid back slowly.
To see the official Federal Reserve report click here!
