Bank Loan Advertisements are nothing but a bait and switch
We stay in touch with many people in the financial industry, and not just Merchant Cash Advance. Back in late March we learned that lending was so tight, that credit cards were barely attainable. That was when the unemployment rate was 8.8% and as of May 2011, it’s back up to 9.1%. That was when the economy was expected to grow by 2.9% in 2011 but is now on pace for 2.7%. The point? If it was impossible to get a loan back in March, then how much worse could it get?
An insider shares it can get worse, much worse. Our friend Tim (name changed) is the manager of the small business lending unit of a major national bank. Any loan less than $1 Million dollars is considered to be for small business. Tim’s unit is on track to do more loans this year than last year and none of them are going to retail stores or restaurants. Did we hear that right?
“Retail stores and restaurants are too flakey to give money to.” That wasn’t just his opinion either because that’s actually part of the bank’s underwriting policy. They are completely prohibited from lending to those business types. So we had to ask…
What if they had 25 years in business? Declined.
What if the guarantors had 800 credit? Declined.
What if they had $5 Million in cash reserves in the bank? Declined.
What if…? Declined. Declined. Declined.
There is no criteria that would make them eligible, period. Tim admits that the interest charged on a loan is not profitable by itself anyway so to take any degree of default risk even if it’s small, is not worth it. Instead, they rely on their loan clients to open a business checking account with them, use their merchant processing, and sign up for other services on which they can charge fees and earn income. Their unit has an average turnover time of 3 months from the time the application is submitted to the time the loan is funded.
“We usually get a jump on setting them up with all our services right when they apply for the loan, so we can start earning on them right away,” Tim said. We wondered why they wouldn’t let restaurants and retail stores apply then. “Oh we let them apply for loans… we just don’t tell them they’re declined until after we’ve locked them into other fee generating services. They’re unlikely to pack up and change banks after that so it works out for us.”
There’s a term for this tactic and it’s called a ‘bait and switch.’ There really seem to be no loans for the businesses that need them, an assertion bolstered by the Small Business Administration’s 2011 1st Quarter report. Lending to small businesses has fallen by $15 Billion.
So where’s the money?
There are still alternative sources available, but we’ve yet to find anything that rivals the speed and flexibility of a Merchant Cash Advance (MCA). Too many small businesses hold out the hope that a bank will help them and pass up the opportunity to obtain alternative financing like a MCA. But how many missed opportunities will it take until it’s too late? How many businesses will sign up for checking accounts and expensive merchant processing, only to find out that no loan is coming and all they’ve acquired is an expensive long term contract for no value in exchange.
If you’re a restaurant or retail store, you can research our directory of verified funding providers HERE. Don’t wait for the bank to approve a loan they’re not allowed to approve and instead get what’s most important, the capital to grow.
– The Merchant Cash Advance ResourceLast modified: February 21, 2013
Sean Murray is the President and Chief Editor of deBanked and the founder of the Broker Fair Conference. Connect with me on LinkedIn or follow me on twitter. You can view all future deBanked events here.