If you watched Presidents Obama’s first State of the Union you could tell he is just as frustrated as the small business owners across the country with today’s business lending environment.  Banks, national and regional, are no longer providing loans to the small business units that drive the economy and keep people working.  Factor financing has become leading way for business owners to get a working capital facility when the bank declines the loan.  Solid financial statements and good personal credit is being turned down by some banks, when in the past this would be a slam dunk deal.  Now, if you have even the smallest issues with the financial statements or personal credit you can forget about it with the banks.

These types of working capital transactions are now largely being funded by secondary lenders and factor financing.  In past these lenders and factoring companies were thought of as more of a last resort kind of financing for a business.  Now companies that have rapid growth and a nice looking balance sheet are using accounts receivable financing companies to fill the void that banks have left behind.  The only real down side is the cost of capital is higher than a traditional bank.  Most of these lenders and factor financing companies charge a discount fee that ranges from .5% to as high as 5%.  The available credit is typically 80% to 90% of the accounts receivable that is in good standing.  Companies that move to this higher cost, but available, working capital facility typically build the cost of funding into the business model when possible so everyone ends up paying for it.

The secondary private lenders and factoring companies evaluate the credit risk differently then a bank.  They primarily look at the future, not the past as banks do when making a business loan decision.  The factor will look at the credit quality of customers (the primary collateral) that the business has within the accounts receivable.  They will also look at the business to make sure the entity is viable and poised to be successful with the working capital facility in place.  They also look at the credit of the business owners, but they are mainly looking at potential fraud issues and are normally fine with some personal credit issues.  Many of today’s larger companies have used invoice factoring or secondary funding at some point along the way.

As small business struggles with the banks for loans it very important that these entrepreneurs look at other sources for working capital.  Do not let banks determine your chances for success.  The banks are not the only place to look and many business owners are finding the available financing by simply looking in the right places.

Tags: available, Banks, Business, Even, Factor, financing, Loans, Providing, Small