Are small business loans still available amid this economic uncertainty?
I am writing this a couple hours after the Federal Reserve cut their Fed funds rate a full percentage point to 0% for the first time since the financial crisis over a decade ago.
This cut, along with the rollout of the SBA Economic Disaster loan program announced late last week, were done to show the federal government is concerned about the effect Covid 19 will have on the economy.
Non bank lenders have indicated there is an abundance of cash available to lend to small business owners. Funds appear to be available for a secured line of credit if your company has assets to pledge as collateral, or an unsecured business cash advance if your company lacks the collateral or your assets are already fully pledged.
Other non bank financing options could include account receivable, purchase order, inventory and or equipment financing. Factoring, or account receivable financing should continue at this point as long as the credit quality of the company you are invoicing is strong.
Purchase order financing allows your material supplier to be paid directly by the financing entity, with the PO turning into a receivable once the product is shipped.
I can see banks pulling back on their lending activity, both out of concern with their current loan portfolio seeing a higher level of defaults (missed payments), along with shying away from new loan commitments to a company they have not had a relationship with before.
Given the uncertainly, my suggestion would be to apply for financing for your company sooner, rather than later. Even though there appears to be plenty of liquidity for business loans now, we really can not forecast how tight the credit approvals may get in the second half of 2020.
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