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One reason the USA and many other nations are in such a severe recession is the lack of credit available for businesses. Ever since September 2008 when Fannie Mae and Freddie Mac were forced into receivership, lenders have not had funds due to increased default rates. Lenders are also fearful that the government's intervention in the capital markets will only hinder their ability to conduct their business.
The current recession and resultant credit shortage have had a detrimental effect on both large and small businesses. There were 25 bank failures in 2008 and 102 failures through 10/02/2009. General Motors and Chrysler had to declare bankruptcy in 2009 after receiving government bailout funds to avoid bankruptcy. Most of the failed banks were bought up by healthier, more prudent banks. When these banks had to absorb failed banks, this made them raise their credit standards as protection against even more high risk borrowers.
The worst impact is on start up businesses that have too short an operational history to establish creditworthiness or build up capital as collateral for a unsecured business loans. Alternative business capital lending resources arose to meet the business needs for money to keep their business open despite the lack of either secured or unsecured business loans. One such source is business factoring companies. They lend money to businesses in exchange for their accounts receivables or invoices. The factors discount the payment against the balance of invoices received. The discount covers the factor's expenses in collecting the invoices along with a profit. The borrower does not have to worry about slow paying customers and can focus more time and money on expanding their business.
For companies that cannot or do not want to sell their accounts receivable there is the merchant cash advance. This program is similar to factoring with one major difference. In lieu of the invoices, business owners agree to give the merchant cash advance company a percentage of the daily credit card and other electronic transaction receipts until the advance is paid off. These advances have a finance charge of anywhere from 20%-40% of the advance. With these rates, the borrowers have to pay more than traditional unsecured business loans so the need for the funds must be quick. In exchange for these high rates, borrowers get money when they need it without the time and effort of dealing with a bank's underwriting department.
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