Overcoming The Lending Drought

The Associated Press reported November 3, 2010, that obtaining credit continues to be a significant challenge for American small businesses, even as the economy is improving: “Tight credit for small businesses is a major obstacle for the economic recovery. Small business owners say they can't get loans to hire or expand because lenders worry the economic picture could darken…[and] bankers now say there aren't enough creditworthy borrowers to merit an increase in lending. Lending to small businesses has remained low for much of the year, after falling sharply during the credit crisis of late 2008 and early 2009.

With banks remaining extremely cautious during the economic recovery, small business owners are left attempting to hold onto, and even grow, their companies while meeting increased customer demand without adequate small business financing. As a result, many entrepreneurs are seeking alternative funding sources and finding that perhaps traditional small business loans, which create debt and make companies dependent on potentially unreliable banks, aren’t the ideal solution in the process.

In today’s market, the most ideal solution for most small business financing is accounts receivable factoring. When obtained through a reputable online factoring company, accounts receivable factoring services (often referred to as “invoice factoring services”) are a reliable, accessible, and fast alternative to the traditional small business loan. With factoring, small businesses simply sell their outstanding invoices to the factoring company and receive payment in a matter of days. The factoring company then owns the accounts receivable, and they help collect on those invoices directly from the small business’ customers.

Invoice factoring is not a loan. In fact, invoice factoring turns accounts receivables into assets, enabling small businesses to have fast funding to meet the growing demand of a recovering economy. With more predictable cash flow, small businesses are able to make better hiring and expenditure decisions. And with the help of invoice factoring companies, small businesses have access to money-saving tools such as advanced credit-screening processes for customers. As well, invoice factoring companies handle billing for their clients, which drastically decreases in-house accounts receivable costs for those clients. Without the expenses of the personnel, paper, printing, and postage required to bill and re-bill customers and process those payments, small businesses are able to reallocate staff hours and have their employees focus on tasks more relevant to their specific business goals.

As traditional small business loans remain scarce and costly, accounts receivable factoring services provide a safe, affordable alternative that actually meets the needs of 21st-century companies in an improving global economy.

Disclaimer: The information presented above is general and intended for educational purposes only. It is not a substitute for practical legal or accounting advice on any specific situation.