Traditional Credit Market Tightens: Businesses Re-Examine Other Financing Options

Business Wire,  May 20, 2008  

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"A banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain." -- Mark Twain

SAN FRANCISCO -- A recent survey released by the Federal Reserve found that about half of U.S. banks are tightening their standards on loans to small businesses, up from about 30% earlier this year. Not only are requirements more stringent, but the loans also come with a higher price tag.

So where do businesses in need of capital to turn for help? How do they avoid the feeding frenzy of "sharks" lurking in the financial pool?

Many small businesses are turning to non-traditional financing, including factoring, as an appealing and accessible option.

The use of factors as an alternative source of capital was the topic of discussion by a panel of industry leaders hosted by the Turnaround Management Association of Northern California on Thursday, May 15th. The session was moderated by Chuck Doyle, managing director of Business Capital.

Factoring is a financial transaction involving the sale of invoices or assets, at a discount to raise immediate capital. While the factor industry largely has polished an imaged tarnished in the early '80s by unscrupulous finance entrepreneurs, industry experts warn, "There are still sharks in the water," and advise businesses to "read the contract and demand flexibility!"

Factors offer companies easy and immediate access to cash, while at the same time assuming responsibility for debt collection. Used correctly and through a reputable firm, factoring can provide a lifeline and maximize business growth, even during a turbulent economy.

The Federal Reserve reported that nearly two-thirds of U.S. banks have raised loan rates. When you take into account hidden fees, upfront fees and other costs associated with a traditional bank loan, factoring favorably compares. The key to factoring, however, is to pay promptly and even use it in conjunction with other types of financing.

Chuck Doyle, moderator of the panel and expert in the turnaround industry, said that companies like Business Capital, which provide a variety of alternative recovery solutions and debt reduction for businesses in financial turmoil, are in increasing demand - despite Fed claims that recent rate cuts will open up credit liquidity to small and midsize business.

"You're talking to the players, not the fans," Doyle said, explaining that while Fed rate cuts are a positive move for the economy overall, the positive effects will take a long time to trickle down to most small businesses in need of immediate relief.

In the meantime, he stresses the importance of being proactive. "Don't wait for the situation to get worse, act while you can still benefit from debt management service," Doyle said.

For more information on the panel discussion, visit the TMA's website at www.turnaround.org. To learn more about Business Capital and the company's full array of financial services, visit their website at www.bizcap.com.

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