In September of 2008, as the U.S. lending system teetered on the verge of total collapse, monthly survey Discover Small Business Watch reported that 73 percent of small business owners view the economy as worsening, and 42 percent are currently experiencing cash flow issues.

But with banks struggling to stay afloat in their own right, business loans have become extremely difficult to secure, even for people with excellent scores. Additionally, real estate prices have declined, removing a common source of small business financing: home equity loans.

Once perceived as an alternative to a traditional small business loan, a merchant cash advance is now the first choice of many an American entrepreneur.

Small Business: The Lifeblood of the American Economy
It is difficult to overstate how important small businesses are to the U.S. economy.

According to the U.S. National Small Business Association, there are more than 25 million small businesses in America, providing more than 50 percent of total private sector employment. About 600,000 new small businesses are founded each year in this country. Over the past years, small business has created between 60 and 80 percent of all new jobs.

Without funding, small businesses cannot grow and thrive, and America is much the poorer, both in terms of wealth and jobs. Realizing this dynamic, the U.S. Treasury has pumped hundreds of billions of dollars into the banking sector, hoping to spur lending.

Whether this will work long-term is not certain, but what is certain is that as of now, approval rates for traditional business loans are low, and wait times are long. Meanwhile, small business owners must be ready for payday--or else lay off employees.

In this environment, merchant cash advances are serving a vital need. Especially for businesses that have been hard-hit by the recession, such as restaurants, a merchant cash advance is a way to pay bills and employees while working to adapt the actual business for success in leaner times.

Though hard numbers are hard to come by, its likely that the merchant cash advance industry has kept many thousands of businesses in business over the past few months.

The Changing World of Finance
The U.S. lending system may never be the same. But that does not mean that the U.S. lending system is doomed to failure. It does mean, however, that things are changing, rapidly. Lenders will have to adapt and so will borrowers. The merchant cash advance industry itself is seeing a shake-out of weaker players.

The financing of American small business is not a zero sum game. There will always be multiple players seeking to serve this need. Nevertheless, the recent turmoil in the credit markets has made it crystal clear what an important part the merchant cash advance has to play.

The merchant cash advance uniquely respects the power of the entrepreneur: to find a way to build a profitable business, in good times and in not as good times. Because a merchant cash advance is paid back through credit card sales, performance is rewarded.

Unlike a traditional business loan, a merchant cash advance looks to the future.

Sources
New York Times
Entrepreneur Magazine
United States Small Business Administration