Small Business Lending Crunch | Credit At Any Cost?

There’s been a lot of talk about how hard it is for small businesses to get credit these days, and for sure there has been a decrease in the amount and size of loans that are available, driving some companies to borrow money at loan shark rates.

A recent article in the NY Times entitled “Spurned By Banks, Small Businesses Find Cash Where They Can” interviewed small manufacturing companies who had found their way to lenders that specialize in “purchase order financing” charge high APRs to loan money against orders. One such company mentioned in the Times article charges about 40% per year, but said most borrowers pay back funds within 60 days (read article here).

But I wonder, how many companies can actually pay back the loans that quickly, and if they don’t, are their margins high enough to support such loans – or are they just getting themselves stuck in a cash flow crunch that has no end?

Susan Martin, Small Business Financial Management Coaching