Small Business Lending Index Falls for Third Straight Month

According to the Thomas Reuters/PayNet Small Business Lending index that came out this past Wednesday, the overall financing to small U.S. businesses fell for the third straight month. This is troublesome because, according to Reuters, “…borrowing can point to trends in growth and employment, because when small firms take out loans they generally spend the money on new tools, factories and equipment. Such capital investments can be a prelude to new hiring.”

Small Business Lending Index Falls for Third Straight Month image small biz lending indexSmall Business Lending Index Falls for Third Straight Month

This news is even worse for small businesses looking to borrow less than $150k through the Small Business Association (S.B.A.)’s 7(a) program. Even with President Obama including provisions in his 2014 budget for the S.B.A. to waive the agencies fees for guaranteeing loans of less than $150k, the NYT article on this issue notes that even, “…some observers in the S.B.A.-lending industry doubt those moves will be sufficient.”

In fact, S.B.A. officials trace the problem back to the collapse of a program known as S.B.A. Express designed to make it easier to secure loans based on someone’s personal credit score rather than their business fundamentals. And even though other programs that are designed to replace the S.B.A. Express loans exist, many have argued the process is too cumbersome on banks, and since they are the same regardless of loan amount, bigger loans are just more profitable and what the banks focus efforts on.

Another option for high-net worth individuals who can’t take advantage of the S.B.A Express loans anymore, but still need loans for short term cash flow problems or funding new business opportunities is a company called borro®. Unlike traditional loans where the item being purchased is used for collateral, borro lending is based on the open market value of the assets for the short-term, with the option to renew every 6-months as needed. There aren’t any business financials to analyze, or personal credit history for that matter, making the turnaround time about 24-hours according to borro CEO Paul Aitken.

Once approved, and loans range from $1,000 to $1,000,000, borro issues a loan payment via bank transfer and stores the asset safely for the duration of the loan. They even have special environmentally controlled facilities to accommodate the needs of things like fine art, antiques, fine wines and luxury cars, all of which can be used as collateral on a loan.

Small Business Lending Index Falls for Third Straight Month image borro personal assets image2Small Business Lending Index Falls for Third Straight Month

“We’ve seen a tremendous surge in business over the past year, as the traditional lending market continues to tighten,” notes Aitken. “borro’s faster service compared to typical bank lending and the lower cost versus selling the assets are very appealing for business owners to strike while the iron is hot for new investments, including real estate and property development where time is of the essence.”

And if this sounds like a pawn shop, it’s because it kind of is – Just way more upscale with the average loan amount being around $8k versus the average $200 pawn shop loan. Also, while reporting on a $36mil funding round back in October 2012, TechCrunch ran an article titled, “Bridging the Gap Between Pawn Shop and Bank, Borro Raises $26M Led by Canaan Partners.” which made some comparisons. In the article though, Dan Ciporin, a partner at Canaan Patners who led the investment was quick to point out the differences in demographics between pawn shop patrons and the ‘decidedly upscale’ market borro attracts.

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