Monday, September 26, 2011

Are Business Loans Now Easier To Get?

The news regarding business loans has been anything clear over the last several months.  We have been hearing that Government backed business loans would be readily available since the passing of the Small Business Jobs Act of 2010.  So what is really going on, and what can small business owners expect to find in the marketplace.

The truth seems to be that while SBA restrictions have eased regarding the cost to apply for business loans and the percentage of amounts of the loans they will guarantee has increased, little has been done to help borrowers understand whether or not they will qualify for loans.  Easing restrictions and lessening the risks for lenders to encourage them to lend is just one part of the equation.

The part that really matters is that these same lenders who have easier access to funds are now being held to higher standards with regards to how they distribute the money.  Before 2008, banks would do just about anything to push loans through with little concern for a borrower’s ability to pay back money or if their businesses were credit worthy to begin with.  We have already seen the consequences of such lending practices and the banking industry has recovered nicely due to the bailouts.

But things have changed and banks are now being held responsible for vetting their applicants and pushing through every applicant is simply not happening anymore.  You may not infer this from the headline news stories we see about small business owners being eligible for all types of loan programs designed to jump start the economy, but there is no reason to believe that Government backed money is out there for everyone.  SBA Loans are only for those who are attractive applicants, and while this is exactly how it should be, it does not really help those who have been treading water since 2008 and sacrificing their good business credit in order to do so.

The good news for the economy is that more and more people are looking to borrow money.  This is a key indicator on the state of economic conditions and shows that things are looking up.  On a larger scale, commercial mortgage lenders are reporting an increase in demand for capital and community banks are reporting a rise in requests for small business finacings.  So the overall picture is definitely positive, but for the little guy looking for a break, nontraditional lenders are going to be the best option.

Small business owners have been turning to unsecured business loans from companies like Seed Capital for years.  The availability of such business loans has remained constant through good economic times and bad ones.  Unlike SBA Loans, these particular loans do not come with restrictions regarding the way proceeds are allocating and the fact that they can be used to pay down current debt is particularly appealing to borrowers in the current economic atmosphere.  The application process is much quicker and in the majority of circumstances will be absolutely free.  So for anyone struggling with decisions about borrowing, they should consider these type of business loans as a very viable option.

Thursday, September 22, 2011

Credit Card Processing And Durbin's Amendment

In just over a week the Durbin Amendment goes into affect targeting credit card processing fees.  It has been a long time coming but will it provide the relief that it is intended too?  The common belief is yes but if we dig a little deeper, questions will arise.

The whole thing started as a result of the credit crunch which rocked the economy in 2008.  Last year the Dodd-Frank Act was passed which attempted to reel in financial regulations which Wall Street sorely lacked.  This new Amendment focuses on Credit Card processing fees which of late, have become overly burdensome for small business owners.  The fees they must pay to their merchant account providers is dipping into their profits and must ultimately passed on to consumers.

To make a confusing piece of legislation as simple as possible, let us define a generalization for the entire Dodd-Frank Act as it applies to humans.  It was simply a reaction to the credit crunch of 2008 and contains what is considered to be the most drastic attempt at policing financial regulation ever.  Whether it works or not or is simply nothing more than political posturing is yet to be determined but we will only concern ourselves here with the Durbin Amendment to Dodd-Frank.

This Amendment is focused on credit card processing, mainly debit cards and how big banks have been muscling merchants and forcing them to accept less than competitive merchant services because of their sheer size and power.  Currently, big banks are able to impose penalties on merchants for giving customers incentives to pay by cash or using other payment networks to pay for items.

As consumers we often believe the price of something is what we pay for it but it is a little more complicated than that.  Merchants must pay transaction fees to accept credit cards and these fees dip into their profits when accepting a credit card as opposed to cash.  This is why there are always little signs on the register telling us that we must spend a minimum for a merchant to accept credit cards, or sometimes they tell us that it will be a dollar or so surcharge before they swipe our card.  This money does not go to the merchant, but the merchant services provider.

In a lot of cases a merchant has to declare a minimum or even maximum sale to avoid the pitfalls of they may face from their merchant services provider and the Amendment aims to stop this.  Merchants are even penalized for loyalty programs, accepting checks and processing gift cards so this legislation was needed to provide relief for merchants drowning in fees.

The Durbin Amendment clearly states the maximum a merchant services provider can earn on a transaction and for those keeping score it goes like this.  For a debit card transaction highest interchange fee an issuer can charge 21 cents plus a max of 5 basis points multiplied by the amount of the transaction.  This Amendment also focuses on interchange, which simply put, is the fee a merchant's bank has to pay to its customer's bank to pull the money due from the customer's account. 

The intent of the Durbin Amendment is to bring direct relief to merchants but many critics say the banks will resort of other tactics to make up the lost revenues.  We have already seen the disappearance of debit rewards programs for consumers and the days of free checking accounts are all but gone.  An assortment of new fees we have never even heard of will undoubtedly pop up on or about October 1st so while there are major changes around the bend for credit card processing, ultimately we will have to watch the spending behavior of consumers to gauge its success.