Do you have a small business client in London looking for funding, new or existing? Chances are pretty good you do, and they're likely to turn to you for assistance, their London accountants and trusted counselor.
In today's economy, the old adage, "money does not grow from trees" still holds true. Not too long ago, when the capital was abundant, lenders and banks distributed money to new start-ups, existing firms, people, or anybody else who needed money. We all know, however, that the lending industry went through a significant transition during the economic crisis.
Is it any wonder that credit markets have tanked and the economy has fallen into a profound recession? Now, their guidelines have been updated by Fannie Mae and Freddie Mac; they are not lending money to anyone with excellent credit, let alone someone else. So the question is how can a small business access capital when it has to increase its activities, buy new equipment, or restructure its corporate debt?
For new and existing companies, the best choice is to apply for an SBA loan. The SBA doesn't lend money directly to creditors, contrary to what most people believe. The loan is financed and secured by the SBA by an SBA-approved lender such as Bank of America or Wells Fargo Bank. As a result, the bank lends the money to the business owner, so the bank will be repaid by the SBA if the owner defaults.
The long-term amortisation (7-25 years) relative to the short-term (2-5 years) for a non-SBA loan is one of the beneficial factors for an SBA loan. The number of years funded by the lender will be determined based on what the loan funds will be used for. Compared to real estate loans that have a longer maturity period of 20-25 years, operating capital is normally 7-10 years.
With that said, there are more conditions for an SBA loan, meaning that most small business owners will pay fees from an accountant or a business plan writer to retain professional support, with no assurances that the loan will be accepted. The period from initial application to the closing of the SBA loan can vary from 60-90 days, and a list of documents for the SBA loan must be submitted. Without sending the entire paperwork to the lender, no loan will be authorised.
Unconventional sources of funding are becoming increasingly common because a large list of documentation needed for submission would not be available, making the application a fast process.
For instance, obtaining fast funding by considering your account receivables via a business such as Midland American Capital will provide very little red tape for quick cash. I recently had the chance to speak with Scott Brown, Midland American Capital's senior vice president, who told me that they are providing funding in as little as 2-5 days from the time an application is submitted. The business provides excellent customer support and, unlike some of its rivals, does not lock its customers into contract commitments for 1-3 years.
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