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Practice Management > Building Your Business

Small Businesses, Starved for Credit, Seek Hard Money

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The New York Times story of Jack Stack’s daughter’s struggles to find credit to expand her business is far from the only small business credit nightmare out there these days. Another New York Times story tells, as banks have tightened lending requirements and canceled numerous lines of credit and small business accounts, how it’s getting harder and harder for small businesses, the backbone of the economy, to find ways to expand or even keep going.

One factor that may make a difference is the issuance of “the first code of ethics for private hard money lenders in the United States,” according to a release issued by the American Association of Private Lenders (AAPL) on Wednesday. AAPL used to be known as the National Hard Money Association, but the name changed in March. The group is a for-profit organization.

Wallace Groves, AAPL executive director, said in a statement, “For many people the only option for getting the loan they need to secure a home or start a business is through a private lender. By looking for businesses who adhere to this Code of Ethics, they can help assure they are dealing with a reputable professional.” The organization itself was formed, according to its release, “to provide a unifying source of ethics and education for the profession.”

Businesses who have already gone in search of hard money loans should welcome any efforts to bring law to the sometimes Wild-West-like atmosphere of hard money lending reported in the Los Angeles Times, with its higher interest rates than banks and often higher risks to the survival of the business itself.

Financial advisory firms seeking to expand often rely on OPL, or “other people’s money,” according to Mark Tibergien, CEO of Pershing Advisor Solutions and regular columnist for Investment Advisor magazine. Those firms have to be wary that their ambitions for growing their firms don’t outstrip their abilities to execute the growth plan – or to repay the working capital to its lender.


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