60% of Small-Business Loans Rejected
“When financing a business, traditional sources don’t work. You quickly learn that a bank is a place that will loan you all the money you need as soon as you can prove you don’t need it.”-Charles J. Givens, author of Wealth Without Risk.
The Federal Reserve reported last year that more than 80% of the nation’s estimated 27 million small businesses use credit cards to provide working capital. This is necessitated by the lack of access to bank financing. According to a study by Pepperdine University, some 60% of small-business bank-loan applications have been rejected this year.
The cost of credit card capital to finance these small businesses can range from 15% to 30% depending on factors that are often unclear to the cardholder. The protections, which were recently enacted under the Credit Card Accountability Responsibility and Disclosure Act, are only extended to consumers- not businesses. The CARD Act prevents card issuers from raising rates without notice, applying penalty rates to existing balances and charging over-limit fees that are higher than the amounts owed- all common features on many business card accounts.
Although business credit cards can be an expensive source of capital, they are popular as they typically have much higher credit limits than consumer cards-ranging from $10,000 to more than $50,000. The National Small Business Association 2010 biannual survey of 400 small-business owners indicated that 24% of business credit card users carried a balance in excess of $10,000.
Pawn loans are a good example of a non-traditional source of capital to start a business or satisfy an unexpected cash need. The small business owner can temporarily exchange a valuable personal asset for cash via a short-term loan.
Often entrepreneurs are presented with profitable business opportunities that require quick decisions and quick actions. Favorable deals can come up for deeply discounted raw material purchases. Auctions can provide the chance for bargain equipment acquisitions. And occasionally there are opportunities to buy out competitors or partners. Using short-term pawn loans, owners can quickly get the cash needed to take advantage of these situations.
Once the pawn asset has been appraised, the loan can be funded within 24 hours. The term of the loan is only as long as needed with no penalty to repay at any time. Typical terms are 3-4 months but longer loans can be arranged as needed.
Post by Don BattisDon Battis
is the CEO of Pawntique.