Study: Small-Business Credit Conditions Rebounding

Study: Small-Business Credit Conditions Rebounding Thursday, May 30, 2013 by Brian Shappell Credit conditions for U.S. small businesses made a solid leap in the first quarter of the year despite the threat of heavier tax burdens and sequestration spending cuts, according to a study unveiled this month by Experian and Moody’s Analytics. But that’s not to say such an improvement should be relied upon during the middle of this year. The latest Experian/Moody's Analytics Small Business Credit Index climbed 5.7 points in Q12013 to 109, up from 104.3 in the previous quarter. Much of the improvement, characterized as a “welcome surprise” to the authors, was driven by lower delinquency rates and stronger consumer spending. However, even analysts involved in the study themselves warned to not get overly exuberant…not just yet anyway. “Conditions are improving, but only slowly and unevenly across the country,” said Moody’s Analytics Chief Economist Mark Zandi. “Much further progress this year will be difficult given the likely fallout from the sizable tax increases and government spending cuts, but conditions are expected to improve next year once these fiscal headwinds begin to fade.” In addition, the study illustrated that improvements in credit quality are tied less to real improvement in U.S. businesses and more toward managing, “keeping a tight lid on,” labor costs. Within the statistics, increases in delinquent balances were particularly noticeable among the smallest companies, those with fewer than five employees, and the eastern portion of the country appears to be struggling more than other regions because of the weak employment situation, lack of import demand in the European Union and the federal cuts emanating out of Washington, DC. Experian and Moody’s added that the full effect of federal spending cuts likely wasn’t felt fully in the Q1 statistics, and that it could come during the next two quarters. -NACM staff

Looking Beyond Banks for Financing

CEO Tech Guide to Creative Financing Looking Beyond Banks for Financing By Verne Kopytoff February 05, 2013 Entrepreneurs starting businesses drains their savings, mortgage their homes, and hit up friends for cash. After landing some customers, they bring on investors to fund an expansion. It’s a path taken by countless startups. For many, it’s a road to frustration. Access to financing is among the toughest challenges entrepreneurs face. Not everyone has deep pockets or connections with investors. Banks—the most obvious source of money—were already reluctant to make loans to untested, unprofitable businesses with limited collateral and then pulled back on lending during the recent recession. Small business loans fell by half during the depths of the crisis, according to the Thomson Reuters/PayNet Small Business Lending index. Lending has since recovered somewhat, but it is still down nearly 25 percent from its peak at the end of 2006. However, nascent companies—and even some mature ones—have a growing number of alternatives they can tap for capital. Crowdfunding, peer-to-peer lending, microlending, and further options have gained traction in the past several years. “It’s really encouraging,” says Todd McCracken, chief executive of the National Small Business Association, an industry trade group. “We’re starting to see a real renaissance in small business financing.” Few methods of obtaining startup capital have received more attention lately than crowdfunding, by which companies ask the public to make donations, investments, or loans. The best-known contribution-based crowdfunding sites are Kickstarter and Indiegogo. Jimmy Buchheim, founder of StickNFind Technologies, in Davie, Fla., listed his first campaign on Indiegogo recently as a last resort. He had pitched two large companies on developing his idea—Bluetooth enabled stickers that help people track their lost keys, shoes, or cat using a smartphone—but got nowhere. So he decided to forge ahead and build the product himself. Lacking connections with investors and averse to pitching to banks, he took his idea directly to the public. Buchheim’s idea was a hit, raising more than $900,000 from more than 16,000 people. The show of support encouraged him to increase his planned production to 200,000 units, far more than he would have done without the pre-orders he received as part of his Indiegogo campaign. He’s using the money he raised to hire engineers and cover the cost of manufacturing. “As an inventor, it’s been truly amazing,” Buchheim says. Not every business is a good fit for Indiegogo or its rivals, Buchheim says. Companies without experience delivering a project on time risk damaging their reputations, while those who want to keep their plans under wraps may have their ideas stolen, he cautions. Slava Rubin, chief executive of San Francisco-based Indiegogo, says that his website is a useful tool for any company looking to gauge consumer interest in a product and to collect customer e-mails. Making the most of it, however, requires some forethought, he says. Listings for tangible products, particularly those that are further along in development, usually attract more contributions. Campaigns with a video do better than those without one, he adds. Another version of crowdfunding involves companies soliciting the public for investment rather than for contributions. The Jobs Act, signed into law last year by President Obama, paved the way by loosening restrictions on who can invest in private companies. Federal regulators have yet to finalize the rules, so websites that were planning to serve as crowdfunding investment hubs are on hold. Some are getting around the logjam by trying to serve wealthy clients, known as accredited investors, who have always been able to invest in start-ups. “It is certainly a pain for us because we built something that we think is pretty incredible,” says Ryan Feit, chief executive of SeedInvest, a crowdfunding site that is stalled by the regulatory delay. “Regardless, it’s not the worst thing in the world to work with accredited investors.” Another method, peer-to-peer lending, leaves financial institutions out of the picture. Borrowers list the size of their desired loan and its purpose online. Lenders—a mix of regular people and investment firms—decide the amount they want to fund, based on the interest rate offered and their calculation of the risk. In one example, a bait-and-tackle-shop owner in Michigan listed a three-year, $6,500 loan on Prosper, a San Francisco-based peer-to-peer lender whose rivals include LendingClub and SoMoLend, to buy inventory for the spring fishing season. The appeal, which offered lenders a 15.79 percent yield, received a warm reception on the site. After three days, lenders had already funded 70 percent of the loan. CONTINUE READING HERE

Kabbage Expands Its Cash Advances to Brick-and-Mortars

Financing Kabbage Expands Its Cash Advances to Brick-and-Mortars By Patrick Clark May 14, 2013 Since 2011, Kabbage has advanced money to successful Amazon.com (AMZN) sellers, EBay (EBAY) merchants, and others who do business online but have a hard time getting bank credit. By crunching applicants’ transaction history, user feedback, and social media interactions, Kabbage assesses their riskiness and offers financing in a matter of minutes. Kabbage isn’t just targeting online sellers anymore: The Atlanta-based 100-employee company today announced it’s using QuickBooks data to make cash advances to brick-and-mortar businesses. Chairman Marc Gorlin says the company will take advantage of Intuit’s (INTU) popular accounting software, which has more than 4 million small business users, to analyze sales, payroll, and other data with “eyes wide open.” Many factors, such as a company’s hiring history and the number of vendors it works with, help inform Kabbage’s financing decisions. “It’s not any one data point; it’s tying it all together,” says Gorlin. Gorlin says Kabbage’s average financing is for about $18,000. Kabbage doesn’t lend: It makes cash advances. In return, clients pay from 2 percent to 18 percent on the advanced amount, and Kabbage pulls payments directly out of its customers’ accounts. Kabbage, backed by investments from Stephens Inc. Chief Executive Officer Warren Stephens and TPG Capital founding partner David Bonderman, is the latest in a series of alternative financing businesses to promote plans to expand. On May 1, On Deck Capital announced that Google Ventures, PayPal (EBAY) co-founder Peter Thiel, and others had invested $17 million in On Deck, which uses electronic cash flow records to underwrite working-capital loans to small businesses that banks usually avoid. The next day, Lending Club said Google (GOOG) was leading a $125 million investment into the company, amid news that the peer-to-peer lender was getting ready to start offering small business loans. Last week, startup Funding Community unveiled its site for crowdfunding small, short-term business loans. One factor propelling all these new spins on alternative financing geared at small businesses: tight credit. While there are signs that banks’ small business lending standards have loosened a little, difficulty obtaining credit is often blamed for the gap in hiring at small businesses and larger corporations. How wide is the gap? Here’s what Steve Matthews reported in Bloomberg News last week: Companies with fewer than 20 workers increased employment by 3.8 percent from February 2010 to April 2013, while the largest companies—with more than 1,000 on their payrolls—expanded their workforces by 8.6 percent, according to data compiled by Moody’s (MCO) and ADP Research Institute. Part of the problem, as Matthews reports, is that the community banks that have traditionally provided the large part of small business lending have been slow to recover from the financial crisis, despite a Treasury program intended to get small banks lending again. This is difficult partly because even small banks aren’t equipped to provide the kind of short-term financing in small amounts that alternative funders like Kabbage specialize in. Gorlin thinks banks could take advantage of Kabbage’s technology to increase their financing options. “We want to bring automation to the banks,” he says, “whether it’s through a white-label product or they do it through Kabbage.” Clark is a reporter for Bloomberg Businessweek covering small business and entrepreneurship.

Europe's jobs crisis comes into sharper relief

Europe's jobs crisis comes into sharper relief Reuters – 1 hr 10 mins ago. LONDON (Reuters) - Europe's policymakers are starting to recognise chronic unemployment as a crisis in its own right, rather than something that will resolve itself when the economy improves. Compared with the United States, where the labour market is a key determinant of economic policy, European authorities have been more passive in their approach to jobs for many years. But the depth of the jobless epidemic, especially in euro zone countries like Spain and Italy, means their rhetoric is at least changing. Friday's spring economic forecast from the European Commission was a case in point. Invoking European Central Bank President Mario Draghi's pledge to protect the euro, the European Union's Economic and Monetary Affairs Commissioner Olli Rehn said the EU would do "whatever it takes" to overcome the jobless crisis. In previous forecasts, Rehn mentioned reducing unemployment mainly as something that would only come further down the line, after the completion of painful reforms. Jobs data from across the Atlantic, also released on Friday, contrasted starkly. The United States added 165,000 non-farm jobs in April, while the unemployment rate there fell to 7.6 percent, its lowest since December 2008. Business surveys on Monday will reveal more about the pace of job losses in the euro zone, where the jobless rate hit a new record 12.1 percent in March, meaning more than 19 million euro zone citizens are out of work. "At some point they're going to have to change tack, and maybe 12.1 percent unemployment is the time," said David Blanchflower, economics professor at Dartmouth College in New Hampshire, and formerly a Bank of England policymaker. He noted ECB President Draghi did not mention the labour market at all in his economic analysis of the euro area last week, after cutting interest rates to a new record low of 0.5 percent. "If you see the latest minutes from the (U.S. Federal Reserve), they really are targeting unemployment, as they should be. They really do take it seriously," he said. CONTINUE READING NO QUICK FIX

Let Us Know About Innovators and Leaders in Small Business Financing!

Let Us Know About Innovators and Leaders in Small Business Financing! By: Don Graves 5/3/2013 Page Content President Obama and Secretary Lew are committed to creating an environment where America's small businesses can grow and prosper. An essential aspect of making sure these engines of job creation succeed is ensuring that entrepreneurs and small business owners have access to the capital and credit needed to turn their ideas into successful enterprises. The Department of the Treasury, the Small Business Administration (SBA), and agencies across the Administration have taken many steps over the last four years to support small business growth and enable innovation and expansion of small business financing. But there is more work to do. On June 10, 2013, Treasury and SBA will host a Capital Access Innovation Summit. The day-long event will convene innovators in the field of small business financing with the goal of sharing innovative practices in the private sector and learning how the Administration can enable or encourage increased access to capital for small businesses. Building on the success of two previous capital access conferences, we will focus primarily on three areas: (1) Public and Private Capital Markets Access for Small Businesses - including innovative solutions to address any remaining gaps, (2) Small Business Financing: Data and Innovation - how the delivery of small business capital could be enhanced through emerging technology-enabled platforms and other innovations, and (3) Engaging Large Companies to Promote Small Business Growth. To inform this conversation about small business growth, and help set the agenda for this year's Capital Access Innovation Summit, we want to hear from you. Do you know leaders and innovators in small business financing? Using the form below, tell us about (a) leading innovators using technology and data to expand capital access; (b) effective partnerships between large and small businesses, and (c) thought leaders who have identified gaps in small business financing and effective solutions to fill these gaps.​ Don Graves is the Deputy Assistant Secretary for Small Business, Housing, and Community Development Policy at the U.S. Department of Treasury and has served as Executive Director of the President's Council on Jobs and Competitiveness.