Small business owners turn to pawn shops
– Cynthia Hsu is a contributor to FindLaw’s Free Enterprise blog. FindLaw is a Thomson Reuters publication. –
Small business owners that are struggling to make ends meet sometimes need business loans – or a pawn shop. Pawn shop loans are now something that some business owners are turning to as a result of the tight economy and lack of lending.
Pawning is probably easier than getting a bank loan, though the interest rates may be significantly higher.
Pawn shops, including online pawn shop Pawngo.com, will evaluate your item, and e-mail you an offer about how much they are willing to loan you. If you are able to repay the loan, you will get your item back. If not, the pawn shop will keep it. Pawngo itself has loaned about $1.35 million in about 46 states, according to the company website.
Pawn shop owners say that the number one reason why small business owners tend to go into their office is because they want to have enough cash flow to pay their employees, reports CNN Money.
Maybe pawn shop loans could be a viable last resort for some companies. After all, if you need cash in a hurry, pawn shops can help you pay your employees and the bills so that the lights stay on in the office.
The problem is pawn shop loans are probably only a temporary fix. Business owners only have a certain number of assets, and unless the business turns around there will be no way to repay the loans or keep the business afloat. Especially because of the higher interest rates associated with pawn shops.
Exclusive: Fewer small businesses shopping for credit: PayNet
When the financial crisis hit, panicked small businesses were scrambling to find credit. Nearly three years later it’s a much different story.
The level of credit shopping – when a borrower seeks a loan or lease from more than one lender – by small businesses has fallen nearly 30 percent since September 2008, according to new data released by PayNet Inc and it may lead lenders to offer better terms said William Phelan, PayNet’s president and founder.
“It indicates that it’s not a very competitive market right now,” said Phelan, whose Skokie, Illinois-based company released the data as part of the launch of its new Credit Shopping Indicator, which measures the number of lenders a borrower shops for business credit. “In 2008 you would have expected it to be high because of the recession and the lack of availability of credit.”
Phelan said back then the indicator registered 118 – a record – and far above pre-recessionary levels in January 2005, when it sat at 100 – the point at which a borrower typically shops for credit at more than one bank. Today it stands at 84.
This dip is actually good news for small businesses, who should take the opportunity to ask for better loan terms from lenders, said Phelan.
Mr. Phelan is obviously not well informed. The main reason for the fall in credit applications is that many small businesses have collapsed by now and thus need no more credit.
Further, I would suggest that Mr. Phelan actually bothers to shop for credit himself to experience what happens if you walk into a bank and “ask for better credit terms”.
I am surprised that Reuters is consulting with Mr. Phelan who is obviously only a paper tiger and has no idea of what is happening outside his office.
10 questions to find the right bank for your business
– Mary Goodman and Rich Russakoff are co-founders of Bottom Line Up Enterprises. This article originally appeared on The Money Dept. column for BNET. The views expressed are their own. –
Finding the right bank for your business is not all that different from finding the right mechanic for your car, or the right surgeon for an operation. You need some objective information first.
The best way to determine whether or not to consider a particular bank is to find out the answers to the following 10 questions. Use them as your starting point, but know that you should dig deeper if you can.
1. Is the bank healthy with strong financials? Given today’s economic climate and the recent dramatic rise in bank failures, you must check the health of any bank that you seriously are considering. (For more information on how to do this, read this post.)
2. Does the bank have a business division focused on lending to small and medium-sized companies? What percentage of their business is geared to this market? The easiest way to find banks with a business division is the old fashioned way. Just look to see what banks have a phone number for a business division in their yellow page advertisement. I know, this seems old school. But in my experience, the information on bank websites can include a lot of hype. You’ll get much more information if you call and get connected with the right person in the business division so that you can ask detailed questions.
3. Is the bank on the SBA’s current list of top small business lenders? This information is available from the SBA’s most recent study on small-business lending activities. In addition, Entrepreneur Magazine created an excellent website on the banks that are the most business friendly, broken down nationally and by state.
4. Is the bank familiar and comfortable with your industry? Does it lend to your type of business? What industries does the bank specialize in? When you contact a loan officer by phone, tell her what your company does, how long you’ve been in business, how fast you’re growing. Tell her that you’re looking for a long-term relationship with the right bank and be specific about what you need, a $X line of credit, a term loan of $X, etc. If the bank doesn’t work with companies in your industry, ask for recommendations for other banks. Local banking markets are small and bankers are well aware of what type of loans their competitors are making.
Why America’s small businesses are becoming like banks
By Terra Terwilliger The opinions expressed are the author’s own.
Over two years after the start of the Great Credit Crisis, banks are still not lending money. But big businesses know exactly where to go for a quick, interest-free loan … the little guy. Even as corporate profits recover, big companies continue to squeeze their small vendors, stretching out payment terms and writing late checks. Unfortunately, this blatant exploitation is damaging the small business economic engine that drives half of US GDP.
A friend who owns a small consulting company recently received notice from a Fortune 500 client that henceforth their payment terms would be extended from 90 to 120 days. No discussion, no recourse, just a fancy legalese version of “we’re going to start paying you later because it’s better for us, so get used to it.”
That’s as if your employer casually one day sent you a letter saying that they were going to start paying you 30 days late. Unfortunately, you wouldn’t be able to tell your landlord, the gas company and the supermarket the same thing. Your bills still have to be paid on time.
My friend is not alone. Last August, The Wall Street Journal published an article titled “Big Firms are Quick to Collect, Slow to Pay,” which revealed how companies with more than $5b in annual sales were systematically slowing payments to suppliers, while speeding up their own collections. The analysis showed that companies with revenues over $5 billion took an average of 55.8 days to pay suppliers, compared to 53.2 days a year earlier … and compared to the 40.1 days in which businesses with revenues under $500 million pay up.
The situation is not getting better. “We just updated our payables analysis for 2010,” says a spokesperson for REL Consultancy, the company that did the original WSJ research. “We see the same trends in 2010. Large companies continue to pay slowly, and they are still using their muscle to make their suppliers accept longer payment terms.”
Big companies not only force vendors to accept painful terms, they also don’t reliably pay up. According to the Experian Business Benchmark Report of July 2010, the average days beyond terms (days a company is late on paying according to its own billing standards) for companies with over 1,000 employees increased by 5.6% over the past six months, with 17% of all monies owed delinquent. Some of these delays are doubtless due to billing errors or legitimate disputes about payment. Some are bids to wring a few more days of cash flow out of already stretched vendors.
Our own and many client company experiences over the past 18 months validate this article’s point about significant unilateral extended payment practices by larger companies, universities and government agencies.
Talk about a failure to support emerging, small and medium size enterprises and putting a squeeze on small business cash flow – this has truly had a severe direct negative impact on local economies. This surely is not the desired American way.
Moreover, we see companies trying to drastically cut vendor’s prices and hear of employers overworking their people.
Unfortunately these negative factors along with customers’ delaying or cancelling work projects are a negative ‘multiplier’ that combine to delay recovery prospects by perhaps years.
More, Adam Smith’s notion of pursuing ‘self interest’ as a positive characteristic of western capitalism is not applicable within the context of such declining, broken economic model – in fact, self interest in this business environment damages the common good.
Now more than ever #B2B #networks will have to #reinvent and #collaborate for shared #business #success!
Peer-to-peer lender Prosper resumes service after SEC nod
Let the lending begin. Prosper, a popular Web portal that facilitates peer-to-peer loans, announced on Tuesday that it has been given the go-ahead by federal regulators to resume its lending platform in several U.S. states after wrapping up a detailed registration process with the Securities and Exchange Commission (SEC).
The SEC’s approval ends a nine-month enforced hiatus for the company and should come as welcome news to small businesses and entrepreneurs, many of whom are still struggling to find loans amid tight credit markets.
Prosper is now cleared to let lenders in 14 states and borrowers in all but a few use their online auction platform to buy loans and request to borrow money. The approval allows lenders in California, Colorado, Delaware, Georgia, Illinois, Minnesota, Montana, Nevada, New York, South Carolina, South Dakota, Utah, Wisconsin and Wyoming to use Prosper, and more states will gain access soon, the company said in a press release.
Launched in 2006, Prosper was the first online lending and borrowing platform of its kind in the United States and signaled an innovative new way for small business owners to raise funds. But last fall, the startup came under pressure from U.S. regulators concerned about the lack of oversight in the industry and was told to halt all operations until registering with the SEC.
Under the new regulatory parameters, Prosper has introduced a credit grading system for its loan listings, changed some of its bidding requirements, added transparency measures and amended its auction platform to help lenders “appropriately price for risk while investing online”.
For more details, see the full release.
(An earlier version of this post contained incorrect information about Lending Club, an online financial community that facilitates peer-to-peer loans. The company completed its SEC registration in October, 2008.)
SBA announces new ARC loan guidelines
Today the U.S. Small Business Administration announced new lender guidelines for the America’s Recovery Capital (ARC) loan program it unveiled last month.
According to the SBA release, the ARC program provides emergency funds, in the forms of deferred loans, of up to $35,000 to “viable small businesses suffering immediate financial hardship.” These loans are not provided directly by the SBA, but through SBA-backed lenders – mostly smaller or community banks – and are 100 percent guaranteed by the government and have no lender fees attached.
The SBA defines a “viable” business as an “established, for-profit business with evidence of profitability or positive cash flow in at least one of the past two years.” The term “immediate financial hardship” is subsequently defined by the SBA as “evidence to show a change in the financial condition such as declining sales, frozen credit lines, difficulty meeting payroll, paying rent, difficulty making loan payments or perhaps something else.”
SBA lenders will start dispensing ARC loans next week, on June 15.
Eric Zarnikow, associate administrator for Capital Access – the SBA department overseeing the new loans, said he expects 10,000 ARC loans to be doled out over the next 15 months until the September 30, 2010 cutoff date.
In an attempt to make sure all small businesses from across the country benefit from the program, Zarnikow said there will be an ARC loan cap of 50 per week to each SBA-approved lending institution, with no more than 1,000 loans issued from any one lender in total.
If a lender was only able to make 30 loans in any one weekly period, they would be able to catch up the next week by making up to 70 loans, in what Zarnikow referred to as a “rollover” provision.
Your articles are very inspiring indeed. I keep coming back! There are so many things I agree on. I hope we can exhange ideas in the future.
This seems to be a bit of an exaggeration of the situation. I would like to see what last years, or years prior total loan amount across 46 states came to. I am inclined to believe that “$1.35 million in about 46 states, according to the company website.” may be the norm.
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