CIT recently announced that is has ended negotiations with the Obama administration over receiving bailout money to prevent possible bankruptcy. Bank officials have been told that they no longer will receive help from the United States. The bank has been in business for over one hundred years and many small and medium–sized businesses are at risk for bankruptcy if they do not receive the necessary funds to keep their doors open.
Risk of Failure
There are questions as to whether the FDIC may experience liquidity problems if CIT is granted help and then is not able to meet their financial obligations. When banks fail and the FDIC pays money to investors having savings deposits in the bank, the FDIC insures the depositors for up to $250,000. As it stands now, over fifty-eight percent of the loans being held at CIT are in default.
Unfortunately, twelve banks in the United States have failed during the month of July 2009 already, five of them in the state of Illinois alone. This has taxed the FDIC which anticipates $40 billion in losses by 2013. Gerard Cassidy, managing director of bank equity research at RBC Capital Markets, expects 1000 institutions to fail over the next 3-5 years. He also feels that the banking industry problems will be rectified after bank regulators close troubled banks.
Seeking Additional Capital
In view of these enormous challenges, business owners must have a business plan for financing their undercapitalized businesses. There are several answers. For example, a business owner may consider taking a cash advance against their future credit card proceeds. The business owner could apply for a business financial services cash advance with the merchant services provider or with the bank which handles their credit card processing.
The process takes about 48 hours for approval and the business owner could have the advance within seven days of application. Because paying back the advance plus interest involves taking a monthly deduction against the credit card proceeds, the business owner could work on re-establishing his credit if it is less than desirable.
If ambitious, the business owner could engage in fund raising efforts to acquire the needed capital. Hosting an event and charging for the proceeds would draw in sufficient capital to keep doors open, if the event is interesting enough to attract people who are willing to pay for the services. Proper planning of this event would ensure its success.
Another option is to consider selling off some of the assets prior to bankruptcy, such as property, machinery, and equipment to convert to capital. The point is to sell the assets at a profit, and not a loss so that you will have money to stay in business. Your accountant should have a list of all of your assets and the values so that you can determine what to sell.
In conclusion, there are several ways of raising money for businesses in view of the many bank failures that have been occurring during this economic crisis.
Gail Cavanaugh - Gail Cavanaugh is the owner of Gail Cavanaugh's Business Solutions, a company providing merchant services, website design, and marketing ...
