Financing Small Business

Went to a presentation recently where funding sources made presentations to small business owners on how to seek capital.  A couple of things struck me.  First, few if any of the owners had any knowledge of cross collateralization (where your collateral on one loan also becomes collateral on another loan with the same lender) and cash collateralization (where your bank accounts and receivables are collateral for a loan).  In the first instance, you can pay off the first loan and find your assets are still encumbered because they have been cross collateralized on another loan.  In the second case, your lender for all practical purposes owns your revenue stream.  One of the main sources of quick cash a small business has is factoring its accounts receivable, i.e. selling or borrowing against its outstanding accounts.  Both cross and cash collateralization, which are quite common in small business equipment loans and lines of credit, block a business's ability to factor its accounts.

Second, I noticed that most of the owners had been approached about SBA loans, but none had heard about what a nasty collection outfit the SBA is.  You know all those protections you think you have.  You don't have them against the SBA.  I have a client right now whose monthly Social Security check is garnished because she cosigned an SBA loan with her husband.  She didn't understand a bit of it at the time and understands no more of it now.  I could get her out of it with a bankruptcy, but she's been told that's immoral (Yeah, right, as opposed to having a 75-year-old stroke victim cosign a loan.  Some set of values we have these days.  But I digress.).

The moral of the story is, yes, there is money available for your business, but it will cost you, and if you don't read the fine print (or have somebody like me read it for you), it will cost you far more than you can handle.