Talk of a Small Business Credit Crunch
By now, the so-called subprime mortgage mess is probably old news to you. Some lenders who made higher risk loans got caught with their pants down.
Inevitably, that has caused some lenders to ratchet back on new loans, as they work to resolve delinquencies and credit issues.
Now there are a few signs that the small business loan market may not be immune from issues. Some lenders say they are experiencing higher levels of delinquency among small business loans. Lenders such as Bank America, which offered “express” loans that could be secured in as little as 24 hours, up to $100,000 with little or no collateral, are now dealing with delinquencies, they say. As a result, they have discontinued the express loan program.
What’s hard to tell is how widespread this issue is for small businesses. It looks to me like Bank America was very aggressive in trying to grow its small business loan portfolio. It overly relaxed its underwriting standards to achieve that goal. That’s been a recurring refrain among lenders over the years and decades, and not just with small business loans. Aggressive growth always brings extra risk.
But, to the extent that credit is tightening, just remember that factoring may be an alternative. Factoring is not credit. Factoring is about accelerating cash flow (invoices receivables) already due you. The primary issue is going to be your customer’s likelihood of paying their invoice they owe you. Your borrowing ability and debt level is not the main issue with factoring, as it is when you go to get a loan.
