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Giving up Tax Breaks for Lower Rate

AccountingToday: Business Execs Would Give up Tax Breaks for Lower Rate

Taxes are usually a hot topic for the U.S. business community. But in a year of economic uncertainty, business tax structure and tax rates have become a top concern.  In an article on Accounting Today and According to a new report by KPMG, 79 percent of business executives surveyed said they support the concept of corporate tax reform that would repeal tax incentives in exchange for a lower statutory rate.

Cash Crunch Lingers On

This TV news report illustrates that many businesses are still struggling to keep sufficient cash on hand, in large part to lower sales levels and customers demanding longer payment terms.
78% of Small Businesses Gave Payment Extensions to Customers

Businesses frustrated by the continuing cash crunch, should contact Charter Capital. We provide our clients with the working capital they need to thrive in today’s tight credit environment.

Business Lending to Tighten with Wind-Down of TARP?

Critics worry the U.S. Department of the Treasury’s wind down of its Troubled Asset Relief Program (TARP) will unintentionally, adversely affect small business lending.  As banks disengage from TARP, capital requirements will inevitably lead banks to maintain ever more stringent lending criteria.

Predictably, it may be difficult for some businesses seeking financing from bank lenders.  Based upon previous data from the Federal Reserve’s Survey of Small Business Finances, one can conclude that measures of businesses’ access to credit were more predictive of company survival than were attributes of the business, owner, and market.  It’s a story that has been developing since the credit crunch tightened the spigots on funding for small businesses. When the banks said no, non-bank funding providers increasingly said yes. Over the course of 2011, big banks rejected loan applications about 90 percent of the time.

An alternative to traditional banks that small businesses might consider in the face of adversity is Accounts Receivable Factoring (also known as Invoice Factoring).  A Factor purchases a business’ accounts receivable, at a discount, to provide the business with working capital when needed. With factoring, funds are provided to the seller (business) of the accounts in form of the purchase price – a cash “advance,” often 70-85% of the amount of the accounts receivable. Upon the factor’s receipt of payment from the accounts, the balance of the accounts receivable is typically paid by the factor to the seller (business), after deducting a discount fee. Many times, small business owners who have little or no credit history or who need a lot of funds quickly turn to accounts receivable factoring.

Still Looking For Financing?

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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.

Charge!

The Federal Reserve reported borrowing in the category that includes credit cards rose 3.5%, the first rise since August 2008, helping to boost overall consumer borrowing by 3% in December, to a seasonally adjusted annual rate of $2.41 trillion. Borrowing on auto loans increased 2.8%.

Factoring: Funding small business growth

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.

Invoice 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.

Charter Capital Funds Small Businesses Crucial to Supply Chain

Charter Capital is offering  Invoice Factoring Services and accounts receivable factoring programs to support a wider range of options for funding small business suppliers.

In our recent press release, and taking our cue from big bank endorsement of Wal-Mart’s “Supplier Alliance Program”, we have stepped-up our capabilities to offer fund advances to an even greater range of suppliers that have been challenged by the need to extend more generous payment terms to large customers like Wal-Mart, Costco and others.

With increasing demand placed upon small suppliers along with the decrease in the availability of commercial loans, we have become a preferred alternative source of funding.

Invoice Factoring is often overlooked as a viable choice for growing businesses. Also known as Accounts Receivable Financing, this form of funding is a valuable financial tool that allows businesses to leverage the power of their unpaid invoices.

 

Factoring Without the Fear

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 mid-sized 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 Invoice 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 lock-box 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.