subject: 40B in Small Biz Loans Disappears [print this page] 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.
40B in Small Biz Loans Disappears
By: Keith Mabe
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