Banks Keep Lending Standards Tight

The credit crunch isn’t over for small businesses and consumers.

Most U.S. banks kept credit tight in the first three months of the year, and some tightened lending terms further, according to the Federal Reserve’s latest senior loan officer survey.

Some categories showed improvement after years of lending cutbacks. Banks reported easing terms on commercial and industrial loans to large and medium-size firms. While the easing took place only at large banks, it marked the first time since 2006 that banks reported easing standards in two straight quarters.

Some consumer loans, such as home-equity lines of credit, also showed easing in standards. But key areas, such as residential mortgages and commercial real estate, saw continued tightening in terms.

The Fed found that a third of banks tightened terms and conditions on new credit-card accounts for small businesses, while more than a quarter of banks did so for existing accounts. More than 40% of banks said they raised minimum required credit scores. Almost a third said they widened spreads—interest rates over the bank’s cost of funds—on outstanding balances, and 15% reported charging higher annual fees. More than two-thirds of loan officers said their current level of standards and terms is tighter than their longer-run average.

Read more

Recession is Over… But Not For You!

The National Association for Business Economics reveals that 70% of the people interviewed by their surveyor recently believed that the real GDP will grow by more than 2% this year. Up to 24% believe that the GDP will grow by more than 3%. Has the American government regained confidence from its people?

It does look like it has. Some economists are actually optimistic that the prospects for growth this year is great. Industries are currently reporting increasingly better profits and added more jobs, although the recovery may still remain slow. A senior economists of the Federal Reserve Bank of Chicago, William Strauss, said, “After more than two years of job losses, job creation increased in the first quarter of 2010, suggesting a better outlook for hiring over the next six months.”

Last March 2010, the Labor Department announced that job creation increased by 162,000 which was the largest increase in 3 years. The report still was made to look like there was a reason to celebrate although it would mean that we had to ignore that nearly one third of the jobs created then came from temporary hiring for the Census.

Read more

How To Tell When The Recession Is Really Over

There are two kinds of recessions: the one that economists measure, and the one that ordinary people feel.

The official recession is over. That’s because the economy is growing again after a sharp decline, with GDP back to the levels of mid-2008. For people who have kept their jobs, suffered no loss of income and enjoyed a rebound in their investments thanks to the year-long stock market rally, things are pretty good.

Then there’s the unofficial recession, which clearly persists. More than 8 million people have lost their jobs over the past two years, and the economy has barely started to add those back. Many others have had their pay or hours cut. The housing bust, in its fourth year, still isn’t over. Foreclosures continue to mount, businesses and consumers remain gloomy, and many families are struggling to get by on reduced income. “It’s a recovery, but it sure doesn’t feel like it,” says Nariman Behravesh, chief economist for forecasting firm IHS Global Insight. Here are five things that still must happen for a robust recovery to kick in.

Read more

Start-Ups Chase Cash As Funds Trickle Back

Starting a new business is easier than it was a year ago, but wealthy investors, venture-capital firms and banks are still trickling out money very selectively.
Bryan Cooley started Langlearner, an online language-learning tool, in October with $330,000 in start-up money, including $200,000 of his own cash and the rest from a partner. He has talked to several groups of angel investors—small ones that typically put small amounts into very young companies—but remains in limbo.
“They want a sure bet,” says the 32-year-old Mr. Cooley, who worked at a defense-consulting concern before starting his company in St. Louis. “We’re caught in the situation where we need the money to become profitable, but they want to see profitability.”‪
Small businesses under the age of three are as much as 50% less likely to get a loan or line of credit than more established businesses that are similar in other respects, according to a recent survey of small-business credit conditions, which was undertaken to gauge the impact of the recession by the National Federation of Independent Business.
“They always have more trouble than mature businesses,” says William Dennis, senior research fellow with the federation. “But that’s pretty high.”

Read more

A Cash Flow Solution For Government Vendors

In the fierce competition of today’s market only the companies with the strongest cash flow positions can survive. When thousands of companies are not able to make it through these tough economic times, it is important to do business with reputable firms that will stay afloat.

By securing a contract with the government, one can have a big relief. Typically, the government is a reliable payer and establishing a relationship with it can result in other business opportunities. However, a problem can be with how long the government takes to pay its vendors. It can take as long as 90 days to be paid for the products or services provided. Imagine how much cash on hand a business will need to buy materials, meet payroll, pay for rent and many other business operations.

Think of a business that has limited funds: a start up, a business that is working on several projects or a company with a too small credit line from their lender. What are the options to raise the funds quickly when hoping to win a government contract with guaranteed payment that can take your company to the next level? Should you take on the contract and hope to get paid quickly or simply turn it down, waiting for smaller jobs with better payment terms? A choice like that just adds more stress to business owner’s life. Luckily, a fast and pretty simple solution does exist – Invoice Factoring.

Invoice Factoring or Accounts Receivables financing can resolve all cash flow related worries of the government vendors. Factoring companies are primarily concerned with the creditworthiness of the vendors’ customers. Governments are typically very good credit risks and are eligible for factoring. Sounds good, doesn’t it? Moreover, the initial process is quite simple and it only takes a few days to get the funds the first time. Once the relationship with a factor is established time to fund shrinks to 24 – 48 hours.

Factoring works in the following way: a vendor sells open invoices to a factoring company along with providing any other required documentation and receives from 70% to 90 % of the money owed on it immediately. The factoring company will be contacting the government entity regarding the payments on the invoices and once the money is received, the balance of the invoice amount will be paid back to a vendor less the factor’s fee for service.

This is a win-win situation for all the parties. A factoring company provides its regular services and a government vendor gets to take on a profitable contract and establish a relationship with a government entity, that the lack of wouldn’t not allow without the factor.

By Natasha Matsyushevskaya

Invoice Financing Can Revive Your Business In Today’s Economy

The latest surveys have shown a rise in the consumer confidence index. It is hard to say whether it reflects a true improvement in the economic conditions or is caused by the overall optimistic mood the consumer is experiencing and the fresh start they hope for with the beginning of the New Year.

No matter what the true cause is, it means business owners are hoping for the credit crunch to ease, higher consumer spending and lower unemployment. Nevertheless, how do we expect this to take place if these three issues dominate? A rise of activity in small to medium-sized business sector would help as we know that the decline in business by this sector significantly contributes to the official 9.7% unemployment rate in the country (and unofficial probably double that).

Small business owners would be happy to get their companies going but they are facing a huge obstacle – a complete inability to get financing from banks. Bank financing was the easiest path in the past. Not anymore, today banks are stricter than ever and are giving out loans only to businesses with flawless credit and reputation. Therefore, start-ups and companies with not so perfect credit have zero chance to get traditional financing and are forced to look elsewhere or give up.

However, the situation is not as pessimistic as it looks. There are still many business opportunities in the market for small businesses and start-ups. The main challenge is to find enough funds to stay afloat until they start receiving profits from the venture.

Many business owners are not aware of or simply underestimate funding options of accounts receivables financing or invoice factoring. Companies that provide this source of commercial capital are called factors and non-bankable clients are their market niche. Besides the simplistic nature of the process, it is very fast as well. Instead of waiting for the clients to pay their invoices, that can be very painful for businesses with cash flow problems, companies sell them to a factor at a discount price. It normally varies from 70-90 % of the invoice value. The rest of the money is put in the so-called reserve account and will be given out to the company as soon as the factor collects the payments from the debtors. The average fee for the service is about 2.5 % but it varies with the volume of the invoices. The bigger volume of the invoices is factored, the cheaper it gets.

Another important feature of the factoring that makes it attractive for the businesses is that the factor is only concerned with the creditworthiness of the client’s customer. This can be a huge relief for the start-ups with no established credit or for the company with poor credit.

Small and medium sized business owners can greatly benefit from utilizing accounts receivables financing. Going after bigger contracts, being on time with suppliers and payroll are just few advantages of factoring.

Traditional bank lending will be slow to increase for small and medium sized business any time soon. Even considering the government’s latest attempts to revive it, factoring is the valuable alternative that can secure the steady cash flow to fuel growth of your business today.

By Natasha Matsyushevskaya

Small Business Credit in a Deep Recession

Denny Dennis, senior fellow with the NFIB Research Foundation, let me know a while back that he was working on a new small business survey looking at the impact of the recession on credit. The NFIB released the report “Small Business Credit in a Deep Recession” today. Here are a few highlights of the report:

* Fifty-five (55) percent of small employers attempted to borrow in 2009; 45 percent did not, although five percent of owners, so-called discouraged borrowers, did not try because they did not think they could obtain credit.

* Forty (40) percent of small business owners attempting to borrow in 2009 had all of their credit needs met; 10 percent had most of their needs met; 21 percent had some of their needs met; and, 23 percent had none of their credit needs met. The current level of borrowing success is significantly lower than in the mid-2000s when up to 90 percent had their most recent credit request approved.
Read more

Think Banks Are Out of the Woods? Maybe Not

More than $1 in every $10 that American banks have outstanding in loans is lent to a troubled borrower, a ratio far higher than previously seen in the quarter-century that such numbers have been compiled, The New York Times’s Floyd Norris writes in his Off the Charts column.

The problems are greatest in construction loans for single-family homes, where nearly 40 percent of the loans either are delinquent or have been written off as uncollectible. But they are also high in mortgage loans for single-family homes, where $1 in every $8 of loans is troubled.

The figures were released this week by the Federal Deposit Insurance Corporation, as it announced that the number of banks in trouble had risen sharply, and forecast that the rate of bank failures would increase.
Read more

How Large Companies Can Take Advantage of Purchase Order Factoring

Purchase order factoring is not only for small companies. It can also greatly benefit larger ones. By giving businesses the opportunity to access good and materials necessary to fulfill an order without having to pay for them, they can save money or at least avoid tying up the cash they have on hand.

Purchase order financing is sometimes used by companies when they are having cash flow problems. When they are unable to come up with the money to pay for materials from their own cash stores, working with a company that can aid them in doing so is extremely helpful and sometimes necessary so that they are able to meet any contractual obligations they have with a customer.

Read more

Get An Advance On Your Invoices With Invoice Financing

Under normal circumstances, a company that accepts invoice payments would have to wait between 30 and 90 days to collect money owed to them. While being able to make payments in this manner is convenient for customers, it can be financially difficult for the company offering it because they have already provided the labor and materials necessary to provide the service or goods. As they wait to receive payment for work they have already completed, they still have bills that must be paid. If they do not have incoming payments on a consistent basis, this can become burdensome. Invoice financing is an effective work around. It allows companies to receive the most of the money owed to them via invoices right away.

Invoice financing is not a brand new concept. However, it has been receiving much more attention and interest lately, largely because traditional commercial financing options are waning. For example, it has become increasingly difficult to receive a bank loan.

Read more