As the American economy slowly begins to show signs of life, small business loans remain largely unavailable, stalling improvements in the national unemployment rate and further challenging American small businesses.
Small businesses account for some 70% of the U.S. workforce, making Main Street growth essential to economic recovery and improvements in unemployment. Unfortunately, while lending has increased in recent months, small businesses are not reaping much, if any, benefit. William Alden of The Huffington Post reports that the majority of new lending has been for the benefit of “large borrowers.” Writes Alden, “With the unemployment rate at 9 percent, small business job-creation is a crucial piece of the recovery.”
However, with traditional small business loans unavailable, cash-strapped entrepreneurs lack the operating capital to do more than tread water, thus preventing job creation and keeping unemployment high. According to Alden, this lack of small business financing is a systemic issue: “Part of the problem for small businesses stems from the challenges facing small banks, which traditionally enjoy a co-dependent relationship with local businesses. 2010 was the worst year for bank failures since 1992, as the Federal Deposit Insurance Corporation seized 157 banks. On average, the failed banks last year were smaller than in 2009.”
With the economic landscape unlikely to change dramatically any time soon, it is time for small business owners to try new ways to fund their operations while maintaining strong credit ratings and balanced ledgers. One such form of small business financing that provides the funding entrepreneurs need and the benefits they want is accounts receivable factoring.
Accounts receivable factoring is a financial transaction whereby the business owner sells his or her outstanding invoices to an accounts receivable factoring company. The benefits are immediate and significant: Factoring invoices allows small businesses to receive payment, often within a few days, on invoices that might otherwise sit as liabilities on their balance sheets while in accounts receivable for 30 to 90 days. Additionally, factored receivables are recorded as assets on small business’ ledgers, which means companies have access to small business funding without creating debt. This helps small business owners maintain good credit ratings while gaining access to the working capital necessary for America’s small businesses to function, compete, and finally be able to begin creating the new jobs necessary for meaningful economic recovery.
For more information on factoring invoices for small business financing, contact your financial advisor.
In October, CNNMoney.com reported that American small business owners are overwhelmingly dissatisfied with their banks: “Small business owners are less than pleased with their relationships with their banks, especially big banks, according to a study from consumer satisfaction research firm, J.D. Power and Associates… Main Street businesses' overall satisfaction with and loyalty to their banks is declining, according to the U.S. Small Business Banking Satisfaction Study released…[October 2010]. Satisfaction is now at 711 on a 1,000-point scale, down from 718 in 2009. What's more, small businesses are the least satisfied of the financial services customers J.D. Power surveyed.”
