Business owners aren’t convinced. They’ve been dealing with uncertainty over tax increases, health care changes and increasing small business regulations for years, and here’s what they’re facing right now:

• They’ve been waiting for this “business recovery” for for five years.
• Too many small businesses have been hit hard by weak demand, slowing cash flow and the inability to service business debt. Since banks and lending institutions have severely curtailed small business lending, business owners are finding themselves with serious financial difficulties that threaten otherwise viable companies.
• Job growth is falling behind the dismal 2012 trend.
• Manufacturing indexes are disappointing.
• The service growth sector has hit a seven-month low.
• Companies are currently issuing strongly negative outlooks.

Business owners: “What recovery?”

Business owners voiced their concerns in the respected NFIB Small Business Optimism Index survey released in March 2013:

Does that sound like a business recovery to you? Hardly. These indicators are the tip of a very dangerous iceberg — actually, three icebergs, each of which threatens to turn an economy on life support into another major financial crisis.

Dead Ahead: Three Dangerous Icebergs

1) Is there a bond bubble?

By reducing interest rates so low, the Federal Reserve has enticed investors into making risky investments (junk bonds). Most economists did not predict that low rates would last this long. They WILL increase in the near future which will cause large groupings of late investors to get crushed.

2) Is there a housing bubble?

In some areas of the country, prices have dramatically appreciated by up to 10% from a year ago (still well below the 2006-07 averages). Reports have surfaced that the White House is directing banks to once again lend to riskier borrowers. This policy lead to the housing collapse. Meanwhile household debt increased 6.4% during the 4th quarter of 2012 which leads us to believe the paring down of debt has now reversed. Another concern is that institutional investors who were gobbling up foreclosures are now exiting the housing market. When interest rates go up we will see a slowdown and exodus from the housing markets.

3) Is there a stock market bubble?

It is widely accepted that the stock market gains have been predicated solely on the Federal Reserve’s stimulus policies of printing money and buying financial securities from the larger financial institutions (known as Quantitative Easing). This has flooded the banks and financial institutions with massive cash and caused balance sheets to appear healthy, thus increasing their stock prices. However, many economists predict this artificial phantom bull market will crash, it’s just a matter of time.

Now, higher tax rates that took effect in 2013 are adding to the burden of business owners and consumers. Business owners are deeply concerned about the implementation of the burdensome ACA health care legislation. In fact, this is now causing medium and large businesses to reclassify full time employees as part time, taking away benefits and much needed hourly wages.

In addition, the threats of a slowing China and the continuing crisis in the Euro zone, economists now are publicly stating the U.S. slowdown will continue into the 2nd quarter and it is possible we will see some form of major correction in the markets in the coming months.

As small businesses face these challenges, owners are besieged with the worry and stress of a slowing economy. When cash flow slows, business owners freeze and the situation can spiral downward quickly.

Business debt problems can turn into litigation, employee layoffs, and possible bankruptcy

While sometimes litigation is the only recourse available, it usually only benefits the lawyers. In today’s marketplace, it’s important for small business owners to know they do have other options. Specialized consultants (including those with Valcor) can restructure business debt and obtain alternative sources of capital to keep otherwise healthy businesses to remain viable. Valcor’s consultants help relieve the burden, worry and stress by leading business owners through the minefield and resolving business threats quickly and efficiently.

Many business owners don’t realize these options exist. Once they do, getting help quickly can mean the difference between layoffs or bankruptcy OR a continued productive future in the local economy.

Money Matters’ Troy Davis interviews Valcor CEO David Sussman

A 1 hour discussion on the state of small business, credit, business loans, financing, lending, and the threats to the economy.

We invite you to listen as you search the Valcor website.

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Dear Your Business Credit,
I’ve heard that my small business credit card does not offer the same protections as my personal card. Why is that, and does it mean I should switch to my personal card instead?  – Confused

Dear Confused,
Your question is a smart one to be asking these days. In the wake of the credit crunch, many businesses still can’t get small business loans and must rely on credit cards to deal with cash-flow crunches and financing needs. That means the cards you choose will have a bigger impact on your business than if you were able to spread your loans among several types of lenders.

In a 2010 report, the Federal Reserve Board noted that small business credit cards bring certain advantages over personal ones used for business: They often have higher spending limits and offer options such as adding employee cards with preset spending limits. The report found that in 2003, average interest rates on small business cards were lower than on personal cards used for business. The data also indicate that the minimum APR for new purchases tends to be slightly lower for business cards than for personal cards.

Using small business credit cards can minimize paperwork hassles, too. They typically offer convenient features, like detailed monthly and quarterly expense tracking and annual spending reports you can download into your accounting software, notes David Sussman, CEO of Valcor, a small business advocacy firm. Maintaining a separate business card can also help you avoid confusion at tax time about which expenses are for business and which are personal. “At the end of the year, are you going to go through all of your receipts?” he asks.

Setting aside a personal card for business might also help you to avoid confusion. However, experts say that if you’ve formed an limited liability company or LLC, keeping your business expenses separate from your personal ones can help you to keep your personal assets — such as your house — protected if you are ever sued. Having a credit card with your business’s name on it provides proof that you operate the company separately from your individual finances.

What’s more, a business credit card will help you build a separate credit history for your business.

Given all of these advantages, nearly two in three small companies opted for business credit cards in 2009, when the Fed did its research. About four in 10 (41 percent) used personal cards for business expenses.

That said, there are serious downsides to consider. Small business credit cards typically require a personal guarantee — meaning that if you’re running up substantial charges for your business and can’t pay them, you’re responsible. “A lot of people think, ‘If I get a card in my business’s name, it’s separated from me,’” says Sussman. Not so. “If you don’t pay the bill, they will come after you personally.” And there’s no easy out. Under the Dodd-Frank Act, it’s tougher to file for personal bankruptcy protection, he notes.

At the same time, you don’t get as many protections under the Truth in Lending Act as you would with a consumer card. The law requires consumer card issuers to make detailed disclosures that help you compare the cost of using them. The main protection business card holders get under the law, through 1974 amendments, is from being subject to more than $50 in unauthorized charges.

Nonethless, many small business card issuers voluntarily disclose details such as annual percentage rates, finance charges and penalties, using the same type of tables they do for consumer cards, the Fed report notes.

Consumers won some extra protections under the Credit Card Accountability and Disclosure Act of 2009, but these do not apply to small business cards. For instance, consumers must get 45 days’ written notice of rate increases on new transactions and must be given the choice whether to pay “over limit” fees if they make charges over their credit limit (otherwise, charges get rejected). The Fed found that some small business card issuers are adopting some of these terms for their business cards voluntarily, but, since not all do so, you need to look carefully at any agreements you sign.

The upshot: If, like most business owners, you pay your balances in full each month, these terms won’t affect you much — and there’s probably little benefit in switching to your personal card. However, if you carry a balance and make frequent new charges, using a personal card instead may protect you from sudden rate increases.

When traditional small business loans are so difficult to find, which loan alternative is right for your company?

David Sussman explains which type of company should pursue each loan alternative.

It’s no secret that since the credit crisis began three and a half years ago, small businesses have found it tough to get loans from traditional banks.

Although many of the larger banks, like Bank of America, JP Morgan Chase, Wells Fargo, claim to be expanding their small business lending programs, the reality is that 9 of 10 loan applications are rejected (source: Biz2Credit), and the number of small business bank loans has fallen 17% since October 2011 (source: Pepperdine University).

Why aren’t banks lending?

It’s a complicated issue, but in general, banks haven’t fully recovered from the 2008 financial crisis. Many wouldn’t be around today if not for the Troubled Asset Relief Program (TARP). These banks still face significant exposure to bad US mortgages and risky Eurozone investments which have prevented them from taking on new lending risks. The big banks know they can’t rely on a second TARP if they end up in difficult financial circumstances again. Therefore, they’ve become extremely risk adverse. Since small businesses carry a higher risk of default than their corporate counterparts,banks are reluctant to expose their books to this type of lending – particularly when it’s not that profitable for them to begin with.

The other factor at play: rising accounts receivables. According to Experian, larger companies now take 28% longer to pay their bills. Between this and the decline in bank loans, smaller companies face a serious liquidity crisis.

Until bank lending steps up, small business growth will remain stagnant due to slower cash flow – and that impacts the whole economy. Many economists believe it is this reduced cash flow, caused by the precipitous drop in lending, that is adding to the country’s high unemployment, sluggish recovery and declining household net worth. Small businesses are the engine that drive our economy. According to the U.S. Small Business Administration, small businesses  employ half of all private sector employees, generate 65 percent of all new jobs in the country and pay 44 percent of the US private payroll. Without sufficient financing or liquidity, these smaller companies can’t expand their operations, invest in new equipment or fund new research and development; they can’t hire new employees and in many cases have to lay off existing staff.

Loan alternatives for small businesses

When large banks are no longer an option, small businesses need to take advantage of alternative financing. Here are seven alternatives to the traditional bank loan for small businesses.

1. Credit Unions and SBA

Small businesses turned down for a bank loan should turn first to local credit unions or the Small Business Administration. According to BizRate, credit union loan approvals have slightly increased compared to their banking counterparts. SBA-backed lending (ex: 7a, 504, micro-loans) is another healthy option if good business credit exists with at least two years of tax returns.

• BEST FOR: Any business at least two years old, with good credit rating.
• PROS: Reputable lenders, reasonable terms and interest rates.
• CONS: Credit requirements only slightly less than traditional bank loans.

2. Asset-Based Lending

Every company has some type of asset that can be borrowed against. It could be inventory, work orders, equipment, machinery, raw materials, leasebacks, or even securities. By working with a knowledgeable broker, many businesses can leverage these existing assets to secure a much needed source of cashflow for working capital.

• BEST FOR: Businesses in manufacturing, industry, real estate or any company with substantial equipment, products or work orders.
• PROS: Loans can be approved regardless of credit rating or track record. And short-term loans can be relatively low-cost.
• CONS: Higher interest rates and the lender can legally seize these assets upon default.

3. Factoring

Accounts receivables are another asset that a company can borrow against – and many specialist firms are very interested in doing so. Think of it as a loan against future payments. Lenders pay the money in advance and can also oversee collections.

• BEST FOR: Any company to whom monies are owed.
• PRO: Same benefits as asset-based lending, and more financial companies are willing to lend this way.
• CON: Interest rates can range from competitive to high.

4.  Business Line of Credit

Business owners with good personal credit can take out a line of credit, or BLOC, which is typically for smaller loan amounts in the $25,000 to $100,000 range.

• BEST FOR: Individuals/partners with solid credit (700+).
• PRO: Good way to provide quick cash flow or start-up seed capital.
• CONS: Rigorous approval process to get the line and is based on personal credit.

5. Private Equity

Owners can also sell a stake in the business to private investors, similar to what takes place on the reality show ‘Shark Tank.’ By taking on new investment partners, it can be an effective way to raise cash and improve liquidity.

• BEST FOR: Startups or companies that expect high annual growth rates, such as product manufacturing, tech, financial service firms, real estate.
• PRO: Bypass banks and other lending institutions and still raise large sum of cash.
• CONS: Business gives up autonomy to new partner.; can be challenging to find qualified private investors; and requires thorough due diligence on the business.

6. Mezzanine Financing

A short-term high-interest loan that can offer considerable leverage for certain types of businesses. Think of it as a second mortgage on a business. Companies often use this to make real estate purchases or to acquire another business. The holder of the note charges a higher interest rate compared to conventional loans, which it takes out through payments on the debt, added interest to the debt and an ownership stake in the company.

• BEST FOR: Companies in midst of an acquisition or restructuring debt, or real estate development firms.
• PRO: Offers considerable leverage.
• CONS: High interest rate and may take a stake in company.

7.  Hard Money Loans

A high interest loan that should only be used if a business has no other option. This also should be considered a short term (one year or less) option due to the high cost. To get the loan, the business will have to use its real estate as collateral – and typically will only receive a maximum of 65 percent loan to value, usually at an interest rate of 15-20 percent, but it can go as high as 29 percent.

• BEST FOR: Real estate, manufacturing or any ongoing business that can’t get a loan elsewhere.
• PRO: Loan of last resort for companies that can’t get any other type of financing.
• CON: High interest rate and potential low loan to value

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Fox Business Networks’ Robert Gray interviews Valcor CEO David Sussman about small business lending & capital, commercial real estate, excessive regulations and the challenges in the economy.

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Listen now to learn about timely issues including

• The events leading up to the decision that a bank failure is the option
• Bank failure process
• “Healthy” banks’ acquisition of failed bank assets process
• Loan liquidation process
• Recent/current bank failure levels

Even with challenged credit, you can get a business loan. Learn more in this edition of the SMB Roundtable with Michael Chodos from the SBA’s Office of Entrepreneurial Development.

Nick and David discuss the Launch America Initiative for legislation that will provide a major tax credit incentive and safety net for the men and women across America who invest in startups and early stage companies.

The concepts laid out in the book will create a major economic upswing through the formation of all types of startups and thousands of new jobs across America.