Updated March 17, 2018 –
The U.S. Senate’s rollback of some Dodd-Frank’s banking rules appears to be a good sign for small banks and small-business owners.
Small banks would be permitted to exclude their cash balances as they determine how much money to keep on hand in reserve.
At issue has been over-regulation in the wake of the Great Recession, which hurt small banks. This means small banks would allowed to operate at higher limits in lending to provide more capital to small businesses.
Senate Bill 2155 now goes to the House of Representatives.
Small business owners have been facing unnecessary financial risks because they increasingly seek debt consolidation and loan refinancing as the result of high interest rates and onerous fees, according to a small-business lender.
Lender Quarterspot reported, for example, that nearly 25 percent of the $10 million in aggregate loan requests it received from July 7 to August 7 in 2013 were for loan consolidation and refinancing.
But in refinancing their old loans, those businesses face “effective interest rates well above triple digit percentages” said the company.
“There is obviously pent-up demand for business loan refinancing, but this also shows that many small business owners are entering into their original loan agreements without fully understanding the terms and implications,” said Adam Cohen, CEO and co-founder of QuarterSpot (http://www.quarterspot.com).
“We want to educate all owners so that they understand the difference between good and bad loans, and are able to secure the best possible loan for their business,” he asserted.
He warns borrowers to ignore advertised rates and to calculate the true cost of loans.
In a press statement, he claims small business owners are “blindly entering into loan agreements with fixed interest payments and poor terms…since most merchant cash advances and small business loans charge a fixed amount of interest and can include prepay penalties, many of these businesses will be faced with effective interest rates well above triple digit percentages if they refinance.”
Instead, he said business owners should continue to pay on the original until paid off, and get another loan if more funding is needed.
Many press releases and studies published by organizations are self-serving, so it’s important to have a healthy skepticism. That’s my first thought about small-business lender Quarterspot.
Great Recession’s residual effects
The Great Recession was caused in part by the predatory behavior of small-business lenders. In How to Ease Debt-Collection Headaches, I explained how tight credit traumatized 360,000 businesses thanks to unscrupulous practices of lenders like the nation’s 15th largest credit card company, Advanta, headed by CEO Dennis Alter:
Advanta has been repeatedly accused of bilking countless customers with predatory interest rates at higher than 30 percent for dubious reasons, and abruptly cutting credit lines without warning to unsuspecting businesses long before the recession was acknowledged by economists. Little wonder about Advanta’s downfall. Its business customers couldn’t pay their credit card bills.
Advanta and others also wrecked the personal credit of entrepreneurs by requiring personal loan guarantees and Social Security numbers.
So Mr. Cohen’s representations hit a nerve with me.
“There is obviously pent-up demand for business loan refinancing, but this also shows that many small business owners are entering into their original loan agreements without fully understanding the terms and implications.”
He provides six tips:
1. Make sure your business credit profile is accurate by requesting a copy from Experian, Equifax or Dunn & Bradstreet
2. Maximize your good credit accounts by working with businesses that report trade information
3. Positive payment history is a major component of a strong credit profile so be sure to pay creditors on time
4. Maintain sufficient cash reserves in your business checking account to increase your credit limit
5. Choose a business loan without prepayment penalties or fixed interest repayments
6. Compare loans and other financing options calculating the total borrowing costs (interest paid + fees + loan amount) in dollars and cents
“Business owners should ignore advertised rates and instead compare borrowing costs in dollars and cents,” continued Mr. Cohen. “Many online lenders and merchant cash advance companies calculate interest and fees using methods that cost small businesses double or more.”
He claims QuarterSpot can reduce borrowing costs by as much as 85 percent when compared to traditional lenders. He says QuarterSpot does not require small business owners to provide personal loan guarantees or to undergo personal credit checks.
Borrowers can apply for a loan in five minutes or less and receive funding in as little as 24 hours for loans ranging from $5,000 to more than $1 million.
“Small businesses employ nearly half of America and account for half of GDP, yet most small businesses cannot get a bank loan.”said Mr. Cohen in an earlier release. “They are often forced to accept extremely high rates and fees from alternative sources, and worse yet – owners risk losing their personal belongings and damaging their personal credit if things don’t work out.”
If you apply to Quarterspot, please let us know about your experience. (We don’t have any connection with Quarterspot.)
From the Coach’s Corner, here are tips on obtaining a bank loan:
Applying for Bank Loan? Here’s How to Shorten the Process — Business owners generally have two concerns when trying to get a bank loan or line of credit. Either they can’t qualify or they face scrutiny beyond belief. Wouldn’t it be great to save time and shorten the process?
Primer for Best Practices in Preparing Financial Statements – A good financial system is vital for your business. Not only will a properly prepared financial statement tell you what’s transpired in your business, it will give you a snapshot regarding your future.
Budgeting Basics for a Micro Business – For entrepreneurs, often the most difficult part of launching a business is preparing financial projections. It may not be the most enjoyable task, but budgeting is imperative for maximizing performance.
Accounting / Finance – Why and How to Determine Your Break-Even Point – Uncertainty can kill hope in business. Best practices in management mean having the right information to alleviate uncertainty in business. For that you need the right tools.
“It’s easy to get a loan unless you need it.”
-Norman Ralph Augustine