Why Credit Is Still Frozen

Elizabeth Warren: Why Credit Is Still Frozen

The congressional TARP watchdog says there's no evidence that the $700 billion bailout boosted lending to small business 

 By John Tozzi

You report that after Treasury infused capital into banks, most recipients decreased their small business lending rather than increasing it. Why?

Wall Street banks cut back small business lending by 9 percent, more than double their 4 percent cutback in overall lending. Small business lending is expensive. It falls between consumer lending, which is driven almost entirely by numbers like credit scores or Zip Codes and pays off in volume, and large business lending, which is very much about relationships but pays off in very large fees per transaction. Small business lending has proportionally more expense associated with each loan.

Treasury is proposing a measure to provide smaller banks with $30 billion to get them to lend more to small companies. Will this do more to increase credit than the Troubled Asset Relief Program did?

What the Secretary of the Treasury now proposes is not a TARP program. It would require new authorization from Congress. But it continues to follow the same basic TARP pattern: Put money into banks, and they will lend it. The legislation would add some incentives to make the borrowed money cheaper if it's loaned to small businesses, but it's not clear that those incentives will be strong enough.

Even if small banks do start lending more, can they make up for the contraction by the largest banks?

Our economy increasingly must rely on small banks to fund small businesses, but many of those same small banks are themselves in trouble. Commercial real estate loans have left huge holes in the balance sheets of many of these banks, and there's more trouble on the horizon. Frankly, I'm worried.

Some banks argue that lending is constricted because regulators are pressing them to reduce the risk on their books. Do you agree?

Banks have to show that they're strong, and if they're not strong, then the regulators are right to press them to reduce risk. Banks complain about their regulators, but the banks are not going to get structurally stronger from looser regulations. Right now there are no data that suggest the regulators are too tough.

You say Treasury doesn't have good data on small business lending.

The data were terrible even before the crisis—very little information was collected. TARP presented an opportunity to require much more granular reporting from the banks that took taxpayer money, but Treasury didn't ask for it. We pointed this out early and often, but no changes were made. Now, policymakers are flying blind because they failed to collect data on many aspects of how lending shifted when the financial crisis hit.

Tozzi covers small business for Businessweek.com.

Dwindling Cash Flow Is A Big Problem

To a business owner, Cash Flow is KING.

Everyone knows this. You know this. Unfortunately, for some of you, your cash flow is now dwindling. Accessing your cash reserves for a short period is one thing, but going back to it numerous times leaves you in a precarious position.

When you do  not replenish your cash reserves or see a way in the near future to do so, you are walking a tight rope with the likelihood of falling on your face. With all that is happening, you have got to determine ways to help you during times like these.


Ways to Assist You During Cash Flow Crunch Time

1. Assess your current business position.
2. Assess how you use your current resources.
3. Assess what you pay for the goods and services you need.
4. Determine if  you need all the supplies, machinery, and/or equipment you purchase or services you use.
5. Assess your clients against your outstanding receivables.
6. Assess your growth potential into new markets.
7. Be sure to assess the added skills you and/or your staff can bring to the business.
8. Assess your borrowing power. 
9. Assess whether it is time to seek Alternative Financing even before you exhaust all other avenues.
10. Assess alternative sources and funding programs that can get you to where you want to be.

Once you have run through this exercise, you can then communicate with a source qualified to assist you. You can then access Alternative Financing in a variety of ways that can benefit your company. Once you get back on track, be sure to model this process so that you do not end up in the same situation again.

Let me know if this information was useful to you.

Accessing The Right Alternative Funding Option

When you decide to seek financing for your business, you are primarily going to head to your bank. That's obvious. Well, some of you are aware of other financing options to help your business but not necessarily how to access them. Then again, you might not be aware of any option outside the banks. This is where Alternative Funding can be of great value to you and your business.

How do you decide what is the best alternative funding option for your business? Well, first start with your business. Take a look at what you do, who your clients are, and what it is you are trying to do. Let's call them Key Points. Are you looking to buy new equipment, do renovations, buy inventory, or be able to meet your payroll needs? Are you going for larger contracts, such as government (Federal, State, or Local), commercial, or residential? Are you looking to expand into new markets? All of these questions and more should be factored into your Key Points.

Once you have determined what the Key Points are to your business, this can then be assessed against the alternative funding options available. For example, let's check out Factoring. Factoring is the sale of an invoice at a discount. Here are a few points on Factoring:

• Factoring is easy and fast.
• Factoring allows you to offer better and more competitive credit terms to your customers.
• You don't incur any new debt.
• Factoring help you meet increasing sales demands.
• Factoring allows you to can concentrate on growing your own business.
• You can use your customer's good credit as leverage.
•  You don't give up equity.

So, if any of the above fits what you are looking for and works with your Key Point list, then you should consider checking out this alternative funding option for your business.

Once again, DO NOT wait till it is too late to access alternative funding.

Is It Too Late To Access Alternative Financing?

Often times, I talk with other financial sources across the nation and one thing seems to be the same all over. Potential clients are waiting till it is too late to access the capital they so badly need. Even when they know it is vital to their business and their personal well-being, especially for small business owners, it seems as though they cannot make up their minds.

The unfortunate thing is that waiting till last minute and expecting to get funded based on a new contract or order just does not cut it. Small business owners must learn that in the world of Alternative Financing, the risk to the financing source is greater, much more so than a bank. In most instances, you are literally betting on the future growth of your company versus the banks who assess your past financial position. Banks do not care how great a contract or how big an order you just received, the bottom line is their assessment of your past.

So, when you have been turned down by a bank, do not wait till it is too late to access Alternative Financing. These sources do need time to assess their risk exposure and determine the viability of working with you.

Help them help you!

Using Purchase Order Funding

Purchase Order financing is a really simple way to get access to the capital needed to finance an unexpected order. A client needing a larger quantity of your product can be a daunting order to fill. If you do not know about PO Financing or PO Funding, as it is sometimes referred to, then you will have a problem.

It is a good problem to have if you know where to look. Using this financing option to pay your suppliers in part or whole can help you grow your business exponentially. The next time you get an order that you think you just cannot fulfill, check out Purchase Ordering Financing. It can mean the difference between growth and survival.

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How to Win Venture Capital

By COLLEEN DEBAISE

Adapted from THE WALL STREET JOURNAL COMPLETE SMALL BUSINESS GUIDEBOOK (Three Rivers Press).

The process of selecting, pitching and ultimately negotiating with a VC can be intimidating, especially to those not accustomed to the world of high finance. I asked Lori Hoberman, head of Chadbourne & Parke LLP's emerging-companies/venture-capital practice in New York, to explain the various steps. Here's what she said:

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Continued Support for Small Businesses’ Recovery Loan Programs

On May 26, 2010, the Small Business Administration released a news release stating their push for longer term funding for small businesses. Based on the information presented, it showed that the SBA had increased their guarantee support but that the $375 million set aside through the American Reinvestment and Recovery Act (ARRA)to fund small businesses had been exhausted by November, 2009.

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ACCESSING ALTERNATIVE CAPITAL IN TODAY'S FINANCIAL MARKET

Accessing capital for your business in today's financial market is just not easy. Many business owners are finding it literally impossible to get the funding they need to survive or even expand their business. When this happens, if you do not know where to go outside of traditional lenders, this can compound the situation even more.

This is why it is important that entrepreneurs develop relationships with alternative sources. Building such a relationship is so important especially when you find your self in a financial crunch with no help from traditional sources.

Here is one unique source that can help you better understand how to access alternative capital. The Small Business Owner's Guide To Alternative Funding by Karlene Sinclair-Robinson was written for just this purpose.

Fund Your Business Today! Click Here...