Current Financing Trends Add Borrower Distress to Financial Markets

Subprime Cash Flow Loans, Alternative Commercial Lenders, Asset Based Loans and Hard Money Bridge Loans are causing major headaches for the average businessman and draining cash (the life blood of capitalism) from both large and small businesses throughout the heartland of the United States.

Basically what is happening is the decrease in number of conventional Lenders from over 10,000 to slightly over 4,000 is increasing the number of borrowers who cannot obtain a commercial loan. This phenomenon is very similar to what is happening to the shrinking middle class. If you are not a large, strong company located in a “Tier One” Market; such as New York City, Washington, Chicago or Los Angeles, you are going to have difficulty getting a commercial loan and if you can raise money it will probably be at a double or triple digit interest rate.

Why is this occurring? Just as the middle class is shrinking and the wealth in this country is being concentrated, existing major metropolitan markets are draining capital from the heartland of America; resulting in scarcity of lendable funds which significantly shrinks availability and drives up borrowing costs.

Banks are notorious for wanting to lend money to borrowers who do not need to borrow. What happens to the 90% of businesses that need to borrow? They are turned away by conventional financial institutions.

The Lending Arena has the appearance of a thermometer with low borrowing costs at the bottom and feverish rates at the top. How is the market segmented?

Masters of the Universe
Starting at the bottom are Commercial Banks and Credit Unions. If you have 700+ credit, strong cash flow, liquidity and really do not need to borrow money to meet your payroll or buy a piece of equipment, but find it more convenient to do so; every commercial bank in your market area will be most willing to lend you more than you need. You are a 5%’er and can typically borrow at 5% or less. You are a “Master of the Universe”.

The Rest of Us
What happens if you are not creditworthy in your banker’s eye and really need a loan to purchase a new plant? You then move into the lower levels of the financial industry and have to borrow money from an “Alternative Lender”. Loans in this arena are classified as “Sub Prime” and like a less than “Choice” piece of beef are tough to swallow.

Alternative Lenders in this market are classified as follows:

Asset Based Lenders:
An Asset Based Loan is a working capital loan secured by the borrowers Accounts Receivable and / or Inventory. The annual cost for this type financing is between 12-18 % including all billed and hidden costs.

Hard Money Loans:
A Hard Money Loan is one secured by a first lien on a piece of Commercial Real Estate. The Lender generally advances 50-60% of the “hard” value of the property. Anticipate paying between 16-24% per annum including all fees and charges.

Cash Flow or Cash Anticipation Loans:
These loans are off the scale as far as cost to the borrower. We have seen the effective rate on cash flow loans top out in excess of 100% per annum. These are the equivalent of “Pay Day Loans” for businesses and the most expensive money you can borrow.

You can become a Master of the Universe by having Quaker State obtain your loan

Here at Quaker State we specialize in obtaining the most economical solution to borrowers financing needs. Unfortunately most small commercial borrowers have been relegated to being serviced by “Alternative Lenders”. We have a stable of over 450 “Conventional” and “Alternative Lenders” who fund our Borrowers and one of our major services is to portray our Borrowers in the most favorable light and metamorphosize you into a “Prime Borrower”.

I am the principal of Quaker State. Give me a call at 610-667-6701if you are having a difficult time financing your company or commercial real estate and we will take you to Financial Paradise.

Very truly yours,

Leonard J. Keating, Jr.
Chief Lending Officer