Economy in Crisis

Small Business Owners: CNBC Says Loans to Get Tougher.

Lending conditions at U.S. banks are tight and likely to get tighter, according to CNBC and the results of a Federal Reserve survey released Monday.  The Fed’s closely watched Senior Loan Officer Opinion Survey showed that while credit conditions got more strict, demand declined as well.  And that is good news for factors and the alternative commercial finance industry.

Banks Expect Further Tightening

The outlook for bank lending is dismal for the second half of 2023 with most expecting to further tighten standards on all loan categories,” the Fed said in a survey summary.  According to the Fed, “Banks most frequently cited a less favorable or more uncertain economic outlook and expected deterioration in collateral values and the credit quality of loans as reasons for expecting to tighten lending standards further over the remainder of 2023.”

On the issue of consumer lending, banks: “reported having tightened standards for credit card loans and other consumer loans, while a moderate net share reported having done so for auto loans.”  They raising the minimum required level for credit scores for personal loans and are lowering credit limits in the $1.9 trillion consumer-loan space.

More Bank Failures Coming

Shark Tank” investor Kevin O’Leary predicts the ongoing cycle of U.S. Federal Reserve rate hikes could lead to more regional U.S. bank failures.  “I am just predicting — and I am very cautious on this — it will break down in the regional banks, which supports 60% of the economy,” he said, adding that the rapid rise in the cost of capital is “killing them on their real estate loans.”

Regional banks such as First RepublicSilicon Valley Bank and Signature Bank have folded since March.  Those institutions were destabilized by a monetary tightening cycle that has seen 11 rate hikes since March 2022, and the latest increase takes benchmark borrowing costs to their highest level in more than 22 years.

The Power of Factoring When Banks Stop Lending

Factoring can be particularly beneficial for B2B (Business-to-Business) owners when banks curtail lending for several reasons:

  1. Cash Flow Management: Factoring provides immediate cash flow by selling accounts receivable to a third party (the factor) at a discount. This influx of cash can help B2B businesses cover operational expenses, such as payroll or inventory, especially when traditional lending options are restricted.
  2. Flexible Financing: Factoring arrangements are typically more flexible than traditional bank loans. B2B businesses can use factoring as needed, without being tied to a fixed repayment schedule. This flexibility allows businesses to adapt to fluctuations in their cash flow.
  3. Creditworthiness Not Required: Factoring is based on the creditworthiness of the B2B business’s customers, not the business itself. Therefore, businesses with less-than-perfect credit or those that are relatively new may still qualify for factoring, even when traditional lending options are unavailable.
  4. Streamlined Process: Factoring often involves a quicker approval process compared to traditional bank loans, which can take weeks or even months to secure. This speed is especially advantageous when businesses need immediate access to funds to seize opportunities or address urgent financial needs.
  5. Outsourcing Collections: Factoring companies typically handle collections on behalf of the B2B business, relieving them of the administrative burden associated with chasing unpaid invoices. This allows business owners to focus on core operations rather than spending time and resources on collections efforts.
  6. Scalability: Factoring can scale with the business’s growth. As sales increase and the volume of accounts receivable grows, businesses can increase the amount of financing obtained through factoring, providing a flexible financing solution that aligns with their evolving needs.

Overall, factoring can be a valuable financial tool for B2B business owners, especially during times when traditional lending sources are constrained or inaccessible. It provides immediate cash flow, flexibility, and streamlined processes, helping businesses navigate challenging financial circumstances and pursue growth opportunities.

Small Business Owners:  Act Now!

As in any Credit Crunch, the likelihood if this getting worse for small business is a certainty and the time to act is NOW.  For the foreseeable future, its time to reach out and to build your plan “B” relationships.  Find out more and take a moment to request our FREE Factoring Guide which will provide you with just how factoring can provide you with cash flow solutions when the banks say “NO!”

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