Many Small and mid-sized companies that are looking to grow are still running into difficulties when looking for financing: Loans are still hard to come by, and can be more costly than before the recession. According to the SBA, third quarter economic conditions are leaning toward economic growth. However, commercial lending is still weak and small business lending remains flat. This indicates that securing a lending source is as difficult as it has ever been.

One study suggests that less than a third of small businesses that desire credit would qualify for traditional or SBA-backed loans. In the wake of a devastating financial crisis, banks have continued to tighten their lending practices in order to lower risk levels and comply with tougher regulations.  This leaves millions of small and mid-sized businesses without a source of financing to grow or add new employees.

As the economy continues to struggle toward recovery, it is increasingly important for small and mid-sized businesses bolster their finances.  Since it is well known that small and mid-sized businesses power the economy, it is possible that an increase in lending to this market segment could help further improve economic conditions and job growth.

Even if we are in the beginning of a period of economic growth, the fact remains that any rebound from the recession may be muted and difficult to see in real terms.  Even though economists see recovery, it is still not strong enough to have any real impact on small businesses today.

Companies that are still looking for some form traditional bank financing are better off looking for private asset-based funding.   During times like these, asset-based financing (such as invoice factoring) has come to the aid of the small business sector many times by providing the badly needed financing that traditional lenders are currently unable to consider.

Dealing with an uncertain economy is never easy, especially for small businesses. Unlike their larger counterparts, small businesses rarely have the resources to monitor and take corrective action for every trend and issue. And even those owners who have weathered numerous business cycles may be faced with new circumstances that confound their otherwise successful instincts and knowledge.  But a predictable source of financing can certainly ease this pressure.

As reported in The Wall Street Journal, a rescent survey indicates that banks will tighten access to credit in the coming months.

If you find your access to credit tight, factoring services from Charter Capital can provide a redily available source of funds for small businesses without the credit restrictions.

Bankers: Credit Tightens for Small Firms

By Angus Loten

July 12, 2011, 4:17 PM ET

As the recovery sputters, bankers are expecting the credit crunch for smaller firms to get worse
before getting any better.

Among 272 risk managers surveyed at banks nationwide in the second quarter, 60% said they expected approval rates for small-business credit and loan applications to stay flat or decline in the months ahead, Minneapolis-based credit-risk firm FICO reported Tuesday.

Over the same period, 73.8% said demand for credit from small business would likely rise, while only 46% said credit extended to these firms would increase, the survey found. Another 28.1% expected delinquency rates by small-business borrowers to ease, compared to 36.2% in the first quarter, while 33% percent expected the rates to rise.

By contrast, the outlook for consumer credit was more positive, with credit-card delinquencies and charge-offs at pre-recession levels, according to Andrew Jennings, FICO’s chief analytics officer. “Although some consumers continue to struggle with debt, credit usage is under control at an aggregate level,” Jennings said in a statement.

Tighter credit for smaller firms is “most likely in response to a perceived slowing of the economy, which would likely affect small businesses more so than larger organizations,” the report said.

Citing data from more than 1,000 small-business loan applications, Biz2Credit Tuesday reported that approval ratings for small-business loans by large banks dropped to 8.9% in June from 9.4% in May. Loans at smaller banks fell to 42.5% from 44%, the New York-based lending broker reported.

The declines were blamed on weaker revenue and lower profits.

by Keith Mabe

According to The National Bureau of Economic Research (NBER) the Great Recession ended in June 2009, but does that mean “back to business as usual”?

The recession that began in December 2007 and lasted 18 months is the longest and deepest downturn for the U.S. economy since the Great Depression. Fears of a double-dip recession are still alive, especially when unemployment remains high and the housing market continues to be in a slump. Why does there seem to be a huge gap between what the NBER offers and what seems apparent today?

Perhaps this question has already been answered, but no one was listening. Robert Pollin, an economics professor at University of Massachusetts-Amherst states, “The single most important reason for the failure of the recovery to take hold thus far is that private credit markets are locked up, especially for small businesses.” The reality for many small businesses that may have qualified for credit under the old norm is that they do not qualify for credit under the new norm.

We pointed out this paradox in our own August 27th article “$40B in Small Biz Loans Disappears”. How can the recovery be sustained if small businesses cannot access the working capital needed to support renewed growth? Small business is the life-blood of a strong economy. So as long as small business is challenged by access to working capital, then we can expect a challenging economic recovery as well as a hindered job market growth.

It is critical that businesses acquire a funding source that is readily available and dependable. Factoring (also known as Accounts Receivable Financing) is an often overlooked choice for businesses trying to participate in the recovery. This form of financing is not widely known, but allows businesses to capitalize on the power of their outstanding invoices. Factoring can be a valuable mechanism to turn business invoices into immediate cash, enabling them to fund business operations.

Funds obtained from a factoring provider can be used for the same business purposes that one might use cash borrowed from a traditional business lender such as a commercial bank. Instead of incurring debt by borrowing from a traditional lender, business accounts receivable can be converted immediately to cash under a factoring arrangement, essentially, leaving the business debt free. In many cases, under an inter-creditor agreement, a factoring provider can provide funds to a business already indebted to a commercial lender.

Factoring allows the small business owner to retain control of their company and gives them the ability to grow quickly or at a moderate pace. It is all about control and cash flow management. Savvy business owners use the extra cash to take quick-pay discounts from suppliers by paying early. With the right financial strategy, factoring can also provide long term cash flow management, not just a quick fix.

Factoring has become an important small business financial tool in the midst of this uncertain economic environment, as it has proven to be a cost effective alternative for working capital to fuel business growth and to timely pay sensitive cash obligations.

by Keith Mabe
http://www.chartercapitalusa.com

According to bank reports recently submitted to the Federal Financial Institutions Examination Council, in the last two years, $40 billion worth of small business bank loans has disappeared.

At a time when small businesses are struggling with cash flow, access to funding has become more challenging. At the “Addressing the Financial Needs of Small Businesses” forum in July, Federal Reserve Chairman Ben Bernanke explained that a weaker demand for financing from small businesses (who are worried about taking on additional debt during tough economic times) and a dwindling supply of available credit have contributed to the decrease in access to bank financing.

The whole situation puts banks in a precarious position: On the one hand, bank regulators are telling banks to tighten lending standards, while on the other hand banks are being told to increase their small businesses lending. Invariably, if businesses need financing for growth, there are increasingly fewer conventional sources available today. Challenges from slow accounts receivable cycle or recovering from unforeseen circumstances can put a business in a serious cash crunch quickly. Fortunately, there are alternative providers of working capital funds, such as commercial finance companies that specialize in factoring or funding business accounts receivable.

Cash obtained from a factoring provider can be used for the same business purposes that one might use cash borrowed from a traditional business lender such as a commercial bank. As opposed to incurring a debt by borrowing from a traditional lender, ones business accounts receivable can be converted immediately to cash under a factoring arrangement, essentially, leaving the business debt free. In many cases, under an intercreditor agreement, a factoring provider can provide funds to a business already indebted to a commercial lender.

Factoring has become even more prevalently used in the midst of this uncertain financial environment, as it has proven to be a cost effective alternative for working capital to fuel business growth and timely pay sensitive cash obligations.

by Keith Mabe

In the current banking environment, factoring may be a cost effective solution to obtain necessary working capital for small business growth.

Cash obtained from factoring invoices can be used as a short term working capital funding source to pay for labor or suppliers in order to deliver products or services.

Given current economic conditions, banks are still less likely open new lines of credit or increase current credit limits due to significantly tighter credit criteria.  What’s more, banks are viewing businesses with significant growth as being at high risk of successfully executing such growth.  Because of this, many small businesses with growth opportunities are not getting loans or lines of credit they need.

Factoring can be a valuable tool to support business growth.  For example: A service business has an opportunity to add a new client that requires adding new employees. The company can receive factored funds upon issuing the invoice and, in turn, use the funds for the payroll used to support the additional business. There are many other examples, but the theme is the same: Cash from factoring is used to pay for labor, materials, or inventory in conjunction with completing delivery and issuing an invoice to the customer.

Ultimately, if businesses need financing for growth, there are not as many opportunities available today. A slow accounts receivable cycle or recovering from unforeseen circumstances can put a business in a cash crunch quickly. There may be many reasons for businesses to consider factoring, especially if traditional bank financing is the least desirable option.

Historically, factoring has not been well known especially among small business owners.

Factoring now accounts for more than $1 trillion a year in business funding. That is more than three times what it was in the early 1990s. Since then, factoring companies have become more reputable and service oriented while providing readily available funds to businesses that are challenged with cash flow issues.

Although factoring has not generally been well known in the past (except in a few specific markets like textiles and transportation) it has recently become a sought-after cash flow management tool for the small to midsized business (SMB) market across many industries. This is recently, in a large part, due to big companies slowing their payment to small businesses (see article “Big Companies Are Slowing Supplier Payments”) creating severe cash flow problems for these smaller suppliers.

For those unfamiliar with Factoring, it is the process of a business acquiring cash by selling its accounts receivable (invoices) at a discount to a factoring company. The discount, or cost to the business is equivalent to a prompt pay discount a business might otherwise offer to a customer account . The business receives the cash upfront from the factoring company and the factoring company takes responsibility for processing the receipts under lockbox control. It can take time to collect on an invoice, so when a company factors its accounts receivable, the company essentially gets its funds up front while the factor manages the process of collecting the payment remittances — saving the company time, money and positive cash flow.

Factoring allows the small business owner to retain control of their company and gives them the ability to grow quickly or at a moderate pace. It is all about control and cash flow management. More savvy business owners will work the factoring fee into the product or service provided. Others use the extra cash to take quick-pay discounts from suppliers by paying early. With the right financial strategy, factoring can also provide long term cash flow management, not just a quick fix.

As more and more small businesses discover the benefits of factoring, new industries are warming-up to the idea that there is a readily available source of cash hidden within their accounts receivable. In fact, factoring has become so much a normal part of business financing, that universities are now teaching it in relation to cash flow management.

With FDIC reserves plunging to $10.4 billion from $45 billion last fall and the number of troubled banks rising to 416 from 305 in the first quarter, more pressure is being put on banks to “shape up”.

Although the economy is showing clear signs of recovery, the banking sector may not rebound any time soon. It’s possible that the continued problems in the banking industry will substantially outlast the recession, resulting in a significantly suppressed availability of credit in a recovering economy.

With many banks struggling to keep their doors open, small business owners seeking financing, who are already finding limited options, are faced with desperate cash flow issues. As businesses attempt to recover along with the economy, they need financing solutions now.  It is critical that businesses acquire a funding source that is readily available and dependable.

Accounts Receivable Financing is an often overlooked choice for growing businesses. This form of financing (also known as Factoring), is a financial tool that allows businesses to capitalize on the power of their outstanding invoices. Factoring is a valuable mechanism to turn a business’ invoices into immediate cash, enabling them to fund business operations.

It is not widely understood, but a factoring firm provides funds to its clients based upon its clients’ accounts receivable. Most invoices billed to credit worthy customers can qualify. Banks, on the other hand, must consider more stringent criteria before qualifying a borrower for any type of funding. In most cases, when considering assisting a business based strictly upon its accounts receivable, factoring companies can provide funds when a commercial bank cannot.

Just as lenders were starting to ease up a bit after some earnings surprises among companies and economic data that wasn’t as bad as it was earlier this year, an S&P report has indicated that $695 billion in debt will come due between now and 2014. This is sure to curtail lending while companies with upcoming principal payments face a difficult problem or the possibility of default.

In a cruel way, the credit crunch has been pummeling those that are least able to cope with its effects. Small businesses have been hit incredibly hard by the lack of readily available funds from banks in order to stay operational. While many large companies have squeezed their suppliers by paying their invoices later in order to stretch their cash flow, companies providing goods on credit have no come back if the company they are supplying goes under.

Even in a credit crunch economy, there are many ways to maintain a positive cash flow when dealing with Accounts Receivable issues. One increasingly popular way is called Accounts Receivable Financing (also known as Invoice Factoring). This financial tool allows businesses to capitalize on the power of their outstanding invoices. This form of financing is a valuable mechanism to turn accounts receivable into immediate cash, enabling businesses to fund their operations.

It’s not widely known, but most businesses can rise immediate funds for their accounts receivable by simply engaging the factoring services of firms such as Charter Capital. Commercial banks do not consider loans based solely on a borrower’s accounts receivable, but invoice factoring companies mainly consider the accuracy of the accounts receivable when deciding whether or not to fund its clients. In most cases, a factoring provider can provide funds when a commercial bank cannot.

Dealing with an uncertain economy is never easy, especially for small businesses. Unlike their larger counterparts, small businesses rarely have the resources to monitor and take corrective action for every trend and issue. Even those owners who have weathered numerous business cycles may be faced with new circumstances that confound their otherwise successful instincts and knowledge. But a predictable funding source like factoring can certainly ease the pain associated with an uncertain economy.

As the credit crunch continues to intensify, large companies are employing strategies to shore up their cash flow constraints by delaying payments to their suppliers.

In a recent article from the Wall Street Journal, “Big Firms Are Quick To Collect, Slow To Pay”, corporations are attempting to beef-up their collections all while slowing down their accounts payable to 60 days or more. As revenues for large corporations continue to slow in an already weak economy, they are putting the cash flow burden on their suppliers.

Since many of the suppliers of larger companies are small to mid-market businesses, they may carry an additional burden due to the ever dwindling availability of bank loans or lines of credit. Also, small to mid-sized businesses have little bargaining power when dealing with their larger customers and are forced to accept more lengthy terms. This can have a devastating impact on suppliers that are already strapped for cash.

As business owners are already struggling with cash flow in today’s economic environment, financial relief seems to be scarce. However, Accounts Receivable Financing is an often overlooked choice for businesses to manage their cash flow. This form of financing (also known as Factoring), is a financial tool that allows businesses to capitalize on the power of their outstanding invoices. Factoring is a valuable mechanism to turn a business’ invoices into immediate cash, enabling them to fund business operations.

It is not widely understood, but a factoring firm provides funds to its clients based upon its clients’ accounts receivable. Most invoices billed to credit worthy customers can qualify. Banks, on the other hand, must consider more stringent criteria before qualifying a borrower for any type of funding. In most cases, when considering assisting a business based strictly upon its accounts receivable, factoring companies can provide funds when a commercial bank cannot.

Recent economic reports have indicated that we may pull through the current economic crisis reasonably soon. Many economists believe that the economy is beginning to show signs of recovery.

However, the fact remains that any rebound from the current recession may be muted and difficult see in real terms. Even if economists see recovery, it is still too far off to have any positive effect on small business. A concrete example of this slow road to recovery is the average bank.

Most banks are still not lending to small business nearly as much as they once were. Even in the wake of positive economic reports, these lenders are still tightly holding onto their funds. So it seems, for small business, the economy has not yet begun to stir. With more and more businesses seeking out the necessary funds to drive their business out of this recession, it’s clear that traditional lending is not meeting this need.

Those that are seeking some form traditional bank financing are currently better off looking for private asset-based funding. During troubled times like these, asset-based financing (such as invoice factoring) has come to the aid of businesses many times by providing the necessary financing that traditional lenders are unable to consider.

While banks continue to recover, more business owners are discovering the benefits of a lending alternative like asset-based financing (invoice factoring). With the funds they need, businesses can continue to operate and eventually grow once the recession ended.

While economic optimism is contagious, it may not truly reflect the current conditions and address the needs of businesses today. The truth: The outlook for the economy remains uncertain, but there is light at the end of the tunnel.

Small businesses need an abundance of innovative ideas in order to succeed in this difficult economy. It’s all too easy to blame the economy, but there are many ways small businesses can succeed through customer focused innovation.

The good news is: Periods of economic stress are usually followed by new innovative ideas, especially in small business. This stems from a basic business need to retain and attract customers with what the customer perceives as value. Small businesses understand this and are able to fare better in an economic downturn because they think fast. They are in a better position to move very quickly in terms of how they align their resources and address customer needs. That’s just the way they’re used to doing it, in good times and bad. It all stems from the passion they have for their business and their customers.

Innovation does not come without cost. In these times, small businesses must focus on the customer, costs and cash flow. To fuel innovation, small businesses need to re-evaluate their priorities, and their business model, in order to pinpoint problems and goals to provide innovations to products and service offerings. A Cash flow crunch can sneak up on a business if they are not prepared. It can adversely affect a company experiencing a slowdown as well as one that is rapidly expanding.

In order to stem cash flow, businesses should be sure to have cash reserves or arrange backup financing. Lines of credit, equity financing, or Invoice Factoring (also known as Accounts Receivable Financing) can provide a boost to cash flow that can fuel the innovations necessary to succeed.

Now is the time for business owners to innovate and make an investment in their business. To build up a customer base that can support their efforts in an economic downturn. What may matter most is the commitment to innovative change, the tolerance for taking risks, a sharp eye on cash flow, and management’s ability to lead smart.

Small to mid-size businesses are continually faced with waiting 30 to 60 days to get paid on their invoices, which really puts a strain on their cash flow.

Where large companies can usually afford to wait it out, small and mid-size businesses can’t. This can have a serious affect on managements’ ability to pay the company bill or meet payroll. A cash flow shortfall can also affect the business’ ability to fulfill orders because the cash is tied up in unpaid invoices.

How can you get business cash without a loan?

Invoice factoring, also known as accounts receivable factoring, is a financial tool that allows businesses to capitalize on the power of their outstanding invoices. This form of financing is a valuable mechanism to turn your invoices into immediate cash, enabling you to fund your business operations. It is not very well known, but invoices from strong credit worthy commercial clients are excellent collateral, especially for factors. Most banks will not accept accounts receivable as collateral, but invoice factoring companies are more than willing to provide you with financing based on them. In most cases, a factoring provider can provide funds when a commercial bank cannot.

Why use Invoice Factoring?

The reason many businesses make this move is to ensure the continuous flow of cash to the business without sacrificing equity or incurring debt. Essentially, businesses that use factoring are focusing on having most of the money now rather than all of it later. It can take time to collect on an invoice, so when a company finances its accounts receivable, they are getting their money faster and without the hassle of the collection process.

In today’s struggling economy, freeing up working capital through factoring can prove to be vital. Access to immediate cash can be invested into new equipment, used to pay bills, or used toward payroll. Of course, the alternative is to chase the customer for the invoice payment and defer everything else while the money is tied up in the collection process.