The problem is even with this, start-ups haven’t built up adequate credit history and banks are just not willing to give money to companies with no credit history. Without adequate money coming in, it is difficult for a small business to maintain payroll and pay its bills.

No wonder we keep reading the statistic that 85 percent of business start-ups fail in the first five years. Some research has indicated the reasons for these failures are a lack of funding and poor planning. These facts combined with today’s economy makes small business financing more important than ever.

Well, there are ways for small businesses to avoid funding issues and find alternatives for obtaining business financing. One method is receivables financing, also known as receivables factoring and invoice factoring.

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.

Many small business customers, meanwhile, are cutting back on borrowing in part because of the weak economy. Noelle Tarabulski, who used credit cards to finance her Lakewood, Colo., consulting firm before the recession, relied on credit lines of up to $150,000 before her interest rates shot up to as much as 38% after the financial crisis. That came just as her revenue plummeted from $1 million in 2007 to about $200,000 last year.

“I’m just never putting myself in a position where a bank can do that to me again,” said Ms. Tarabulski, whose firm, Builder Consulting Group Inc., works on best practices for homebuilders. She expects about $600,000 in revenue this year but is cutting her debt as much as possible. “At this point my approach to credit is 100% different,” she said. “I have no interest in being leveraged at the level that I was. For me I think there’s a healing period going on.”

Businesses and households across the U.S. are trying to cut their debt and increase savings, spurring a continued drop in loan demand. The Fed said demand for prime residential mortgages fell at a third of banks surveyed, while it was stronger at a fifth of banks.

Chief Executive Brian Moynihan said during the company’s first-quarter conference call last month that loan demand remains weak because of overall economic conditions, as opposed to an unwillingness to lend. “Customers are not feeling the need to draw on our lines because they don’t see economic demand,” he said.

Outside of credit cards, some U.S. banks in the Fed survey reported easing standards and reducing spreads for consumer loans. About one in seven banks said they were “somewhat more willing” to make consumer installment loans compared with three months ago, while the rest were unchanged.

“The gradual normalization of bank credit supply and demand bodes well for loan growth in coming quarters, and the increasing availability of bank credit is slowly removing one of the remaining drags on the pace of recovery,” said Michael Feroli, chief U.S. economist at J.P. Morgan Chase.

By SUDEEP REDDY

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.

While economists of the Federal Reserve keep forecasting economic growth or that the recession is over, others are forecasting even a worse recession coming. It is interesting to see how the Federal Reserve never even warned the American people about this recession before it actually happened, and now they actually forecast that the recession is over or that the economy is at the verge of recovery. Meanwhile, other economists, forecasters, successful investors, and businessmen seem to have a completely different opinion from the Federal Reserve… and even the government.

Jim Rogers, investor and author, believes that the recession is going to be worse, despite the rise in stock market.

Gerald Celente, CEO of the Trends Research, believes that the government is making it appear as if there was a recovery, but the fact of the matter is that nothing is going to get better.

The National Bureau of Economic Research, a body that confirms the inception and the end of US trade cycles, believes it is far to early to announce that the recession is over, despite positive indicators.

Lawrence Mishel, a nationally recognized economists and President of the Economic Policy Institute, believes that the recession is not over.

So is the recession over or not? Whom would you rather believe more? Probably not a good idea to believe the Federal Reserve or the government. However, it is still amazing to see how 70% of Americans actually do believe the lies that it is over… despite of all the counter forecast by independent economic analysts or forecasters. But then again, maybe they weren’t really lies.

The recession is probably over, but not for you… it is over for all the little friends of the Federal Reserve who received a huge chunk of bail-out money…

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.

Banks need to lend more. The government’s emergency measures helped stabilize the financial system, but banks haven’t taken the next step and increased lending. With trillions in bad loans still on their books, many banks continue to hoard cash and turn down loan applications. That depresses the market for homes, cars, appliances and other costly items that many consumers can’t pay for in cash. It also squeezes small businesses, which often rely on credit to meet payroll, order supplies, invest and grow. Behravesh predicts that lending could bottom out and start to pick up by late this year or early next year–although that would probably be the point at which the Federal Reserve starts to raise interest rates to subdue inflation. A few things that will signal improvements in the credit market: a drop in the required down payment for well-qualified home buyers, which is typically 30 percent or more now; increased availability of car loans for subprime borrowers with a credit score below 680; and banks’ willingness to increase their customers’ credit-card limits, if asked.

Incomes need to rise. Median income was stagnant for about a decade leading up to the recession, and it probably fell 5 percent or more over the past couple of years. Some economists worry that reduced incomes could indefinitely curtail consumer spending, which has long fueled the U.S. economy. A glut of unemployed workers will keep wages low in many industries for years. And since many families have lost wealth because of falling home values or declining investment portfolios, or both, they need to save more to prepare for retirement. That leaves less money to buy stuff. The good news is that inflation is low and energy prices are stable, which helps stretch a dollar.

Housing needs to stabilize. Most of the pain is probably in the past, but home values continue to erode in many regions. Moody’s Economy.com predicts that house prices, which have fallen more than 30 percent from their 2006 peaks, could still fall another 5 to 10 percent through the end of this year. Since many families still have the majority of their wealth invested in their homes, the economy can’t really get healthy again as long as such a huge asset is falling in value. The end of the federal home-buyer tax credit and other government programs throughout the year will test whether the housing market can stand on its own. If it can’t, the government could step back in, but that would only signal further weakness in a sector that accounts for more than 15 percent of the economy. The silver lining is that falling prices make it a great time to buy, for those with enough cash or the ability to get a mortgage.
Confidence needs to rebound. Americans remain gloomy, with most consumer-confidence surveys showing only modest improvements from the low points hit during the recession. The most obvious reasons are the weak job market and a sense that the recovery will be weak at best. Businesses are downbeat too, with CEOs worried that strapped consumers will put their wallets away. That makes them reluctant to hire, which perpetuates the malaise. Confidence is a perplexing psychological phenomenon, and economists aren’t sure what it will take to make consumers upbeat enough to propel a robust recovery. But once home prices stop falling, jobs seem more secure, and people feel like the bloodletting is over, that will certainly help.

Jobs need to return. The availability–or lack–of jobs is the single biggest factor in the economy, and unfortunately, a pickup in hiring is likely to be painfully slow. Many of the 8 million lost jobs are probably gone forever, as manufacturers downsize their operations and many companies substitute technology or cheaper foreign labor for American workers. The unemployment rate, which is 9.7 percent now, might even rise throughout the year, as workers who gave up looking for jobs try again and the labor force swells.
Still, economists recognize some familiar patterns in the job market that suggest things are finally getting better instead of worse. Corporate profits are strong, thanks to aggressive cost-cutting over the past two years. That means companies can afford to hire workers, if they decide to. And productivity gains have hit record levels recently, which means companies are extremely efficient; if demand picks up, they may only be able to meet it through increased staffing. A good indicator of real improvement would be several consecutive months of six-figure job gains, due to permanent hiring and not temporary factors like the census or weather-related events. “The recent resumption of employment growth will be sustained and gather strength over time,” insists T. Rowe Price chief economist Alan Levenson. That’s not the kind of roaring endorsement most Americans want to hear, but it suggests that sooner or later, the recovery in your neighborhood will catch up with the one that economists see in the data.

By Rick Newman

By Conor Dougherty and Pui-Wing Tam

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

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

Invoice funding is a good option for companies looking to immediately infuse cash into their coffers. Many companies, in a variety of industries, are eligible. If they have credit worthy customers who owe them money, they may qualify for this type of commercial financing. Factors are the businesses that make invoice financing possible. They purchase the outstanding invoices of companies looking to sell them for fast cash. The holders of these invoices, those persons who owe money for work or goods already provided to them, must have good credit. This is a bit unique because in most cases, it is the business that needs to be credit worthy if they are to receive financing. Invoice factoring turns the traditional requirements on their heads.

It doesn’t typically matter how long a company has been in business or even how good their credit score is. If they have outstanding invoices owned by persons (or companies) with good credit, they can sell those for cash, to a Factor.

Factors purchase invoices for less then what they are worth. They generally offer a rate that is about 10% to 30% cheaper then the full-value of the invoice. For example, an outstanding invoice worth $100,000 might be purchased for between $70,000 and $90,000. The exact amount might be dependent on a number of things, including when the invoice is due. One that is due in 30 days might command a higher price then one due in 90 days. The credit worthiness of the clients and the going rate of the industry will also impact the final offer.

After the invoices are purchased, the Factor then collects on them. All of the previously agreed upon terms of payment remain the same and all monies are now sent to the Factor. Once they receive them, they are returned to the company that originally owed them. The only money which is kept is the pre-arranged fees for the Factor’s services and the money already paid for the invoices.

As one can see, invoice funding can be an excellent way for businesses to quickly generate capital. It allows them to raise money regardless of their experience and credit worthiness. If they have companies with good credit history, who owe them money, they are able to use them to secure a cash advance. Instead of waiting 30-90 days, the typical amount of time it takes for a company to receive payments for invoices, they are able to access a good portion of the amount owed to them in a mater or days.

If a company has customers with good to excellent credit that owe them money, they can utilize this working relationship and any outstanding invoices to their financial advantage. This is a very clever financing option because it utilizes the work that a company has already done (and money owed) to generate capital right away. It is not necessary for companies to wait months for monies owed to them. Instead, they can receive it in a matter of days.

Invoice funding is extremely creative and very beneficial for the companies that utilize it. A great percentage of business that bill their customers via invoices will quality. They only need to find a Factor to work with. Factors are companies in search of quality invoices. They purchase them at discounted rates, collect them and then return all monies, minus their fees and any funds that went toward the original purchase of the invoice, to the company they bought them from.

Invoices are generally purchased for about 70% to 90% of their total value. While a company may originally take a hit financially, there are a number of noted benefits. Instead of waiting 30 to 90 days, which is standard for invoice payments, they can receive money within in a matter of days.

For some companies, waiting up to three months to receive owed to them for work they have already done is simply not an option. They may be cash poor, making it difficult, if not impossible, to cover their fixed expenses, pay employees, fund jobs and advertise for future business. Companies in this sort of predicament may be willing to initially accept a discounted rate for their invoices in exchange for fast cash. Also, because they will eventually receive the remaining portion of the invoice, it really isn’t a huge deal.

As stated above, even though the initial purchase price of the invoice is less then its full value, companies will receive the remaining amount after the Factor has collected all of the invoices. They will then pay back all of the money they have collected, minus the agreed upon fees arranged between them and the company they bought the invoices from. They will also withhold the 70% to 90% they already paid for the invoice.

Another option, which is closely related to invoice funding, is PO funding (purchase order financing). The latter involves a Factor purchasing the materials that a company needs to fulfill a contracted order. After the company has received the materials, manufactured the product, sold it and is paid, they share a portion of the profits with the Factor. Both are excellent options and generate what is needed so that a company can continue to stay in business or meet their obligations.

Most businesses will require some form of external capital in order to survive or grow. In many cases, this would include the use of a bank loan. Bank loans have traditionally been fairly difficult to secure. This is even truer today. The poor economy has made it nearly impossible for many companies to qualify for a loan. However, the need for money hasn’t diminished. Instead, there are more companies then ever, unsure about their futures because they are finding it difficult to come up with the capital necessary to keep them selves operating. This is not a reason for hopelessness. In many cases, just creative financing. Invoice factoring is a great alternative that many businesses either don’t know about or haven’t tried.

A company interested in factoring invoices will find that the process is fairly simple. It includes them selling their outstanding invoices (or receivables) at a discounted rate to a Factor, who will usually purchase them for between 70% and 90% of their full value. The credit history of a company’s clients will have a lot to do with how much a Factor is willing to pay. The Factor’s own financial standing and access to funds will also influence the price they offer. After they purchase the invoices, all clients will be instructed to send their payments to the Factor. They will act as a collection agency of sorts, accepting payments, even writing and calling customers if necessary.

After all of the invoices have been collected, the Factor will return all monies to the company that originally owned them. Dependent upon the arrangement, they might also return the money as it comes in. The exact amount returned will not include the Factor’s fees or the money already paid to the company during the initial purchase of the invoices.

Factoring invoices is a very good option for businesses interested in creative, commercial financing. For most companies, bank loans are no longer an option. Banks are simply refusing to loan businesses and individuals, for that matter money. This of course is not uniformly true. There are some people and companies able to qualify for bank loans, but has become extremely tough to do so and those without A-1 credit, will have a very hard time. Fortunately, there are still ways for businesses to secure much needed funds. Invoice factoring is one of them.