November 8, 2010
The Associated Press (AP) reported this week that, despite economic improvements, “U.S. banks are failing at the fastest rate in two decades.” While the report is clear that America’s financial crisis has not returned, it demonstrates that smaller “Main Street” banks are still in serious danger: “[In] communities around the country, 143 banks have collapsed so far this year - more than all of last year. This time, the failed banks are smaller, on average, than in 2008 and 2009. The damage to the industry has thus been milder this time. Still, the wave of closings points to the persistent struggles of many communities and states.”
For American entrepreneurs dependent on local lending institutions for small business financing, bank closures are no small concern. Small business loans remain tremendously difficult to obtain, and as local banks fold, small business owners who have cultivated long-standing relationships with their local banks are left without a lifeline. Still, the economy does continue to improve, and small business owners trying to meet increased customer demands in order to save, or even grow, their companies are left without the funding sources necessary to provide working capital.
Financial experts predict that, according to AP, “…more small banks will go under. Estimates are for 160-200 banks to close this year, and a similar number next year.” In addition, “While banks have closed this year in nearly every region, some states have been struck especially hard. Illinois and Georgia have each had 16 bank closings. California has had 12, Washington state 11. All four are among the 14 states with the highest foreclosures rates.” Even long-standing institutions are not immune to the effects of this recession, “The Peoples Bank in Winder, Ga., for instance, survived the Great Depression, but fell in mid-September. It had about $447 million in assets and had been in business since 1926.”
The scarcity of small business lending has led to many entrepreneurs seeking alternative funding sources and, in doing so, discovering the benefits of accounts receivable factoring. Accounts receivable factoring, sometimes called “invoice factoring,” provides companies with a reliable form of small business finance without creating debt. By selling their accounts receivable to a factoring company, small businesses receive payment on their outstanding invoices usually within a matter of days instead of waiting up to three months for a customer’s payment. With this influx of working capital, the small business is able to meet customer demand while avoiding the typical pitfalls of traditional small business loans such as generating debt, relying on insecure funding sources, and paying high interest rates.
Not all factoring businesses are equal. It is important, in making the switch to invoice factoring, that small business owners choose reputable factoring companies, such as online accounts receivable factoring firms associated with Factors Against Fraud and the International Factoring Association.
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.
