Monthly Archives: September 2009

The Government and Small Business Funding Versus Factoring

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A hat tip to Santa Monica Mirror Staff Writer Hannah Heineman for her article entitled, “Stimulus Presents Opportunities For Small Business” which covered a workshop that was held on September 2 at the Los Angeles California Airport Renaissance Marriott to help small business owners understand how they can compete for the government’s stimulus dollars. Why? Because, figuring out how to take advantage of these government opportunities can be challenging, especially for small businesses.

The United States Small Business Administration’s representative, Lorenzo Flores, was present, stating that there is ? no doubt that small business is the backbone of the economy so it’s important to help them participate in stimulus projects and programs.

Small businesses are defined as having 100 employees or less. Even though the federal government has made it easier for small businesses to obtain loans because they are now guaranteeing loans at 90 percent so lenders only have a 10 percent risk, the process can be challenging.

Why not look to other successful strategies like accounts receivable financing? This tactic can be accomplished with money in hand long before a small businesses looks can get a Small Business Association (SBA) loans, even though they have no fees.

Academic Study Says Legislation is Against Small Businesses

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It would appear that legislation that was intended to help small businesses punish late payers is instead being used against them by large companies seeking a reward for settling bills promptly, says one academic study by the Federation of Small Businesses in England.

4,000 business failures were caused by late payments last year and research among its members found one in three were waiting longer to be paid since the start of the credit crunch, with waiting times being stretched as long as four months.

However the country’s smallest companies, hit hard by the credit crunch and the recession, are experiencing a tentative recovery. A survey of 4,400 FSB members carried out at the end of May 2009 found that 57 per cent were ? quite confident about the future prospects of their business, while 68 per cent said that they planned to grow in the next six months.

One growth strategy that small businesses worldwide can use to grow is accounts receivable factoring.

Rather than to experience late fees some businesses have discovered that factoring helps keep them current with bills, payroll and supplies, enabling them to stay in business, produce and get more business.

Do Start-ups Relying on Credit Cards Fail?

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A new Kauffman Foundation report says that every $1,000 of credit card debt increases the probability that a new firm will close by 2.2%. The study suggests that taking on credit card debt is one factor that contributes to business failure. Furthermore, it appears as if credit cards are replacing the traditional loan. But what if entrepreneurs used the age old strategy of accounts receivable factoring to get their new business up and running?

Lead researcher of the study, Robert Scott, surveyed 5,000 start-ups beginning in the year 2004, tracking their progress up through 2006. 58% of them used credit cards to fund their business during its first year; one-third of those carried a revolving balance. The average debt for those companies with outstanding balances at 2004 was $11,000.

If you were to take a look at NOT running up credit on high interest credit cards when starting a business, but instead, using factoring to pay employees, suppliers, and start-up costs associated with a new business, the cost of doing business, would no doubt be less.

How do factoring companies charge for their services? Invoice factoring is the process of selling invoices or receivables to a factoring company which gives a company an immediate infusion of cash. The Interface Financial Group (IFG) can advance up to 90 percent against purchased invoices. IFG’s professional rates are very competitive. Each client’s circumstances will vary and may have an impact on the fees.

Thanks to today’s economy, businesses are under pressure to maintain stability and profitability. Many companies are not able to accommodate their growth due to cash flow pressure. Accounts receivable financing helps by providing companies with immediate working capital, allowing them to increase their revenue because with increased cash flow they can accept more purchase orders.