Waiting, Waiting for Access to Working Capital

Big businesses can raise working capital buy selling stock, but the little companies don't have that luxury. Small businesses just want to make a purchase or two that is sure to fire up and grow business, but they feel trapped as banks keep tightening their lending rules.

Federal Reserve Board's Senior Loan Officer Opinion Survey on Banking Practices does report a reduction in tightening of standards in April 2009. Roughly 43 percent of banks increased their standards in April 2009, down from almost 75 percent in October 2008. Nonetheless, the possibility of a loan remains out of reach for many small businesses.

While the restrictions have dropped in April, small businesses must look elsewhere for working capital. Companies have had success in finding better loan terms than they had with banks by going to private lenders.

Banks don't consider that small businesses are more vulnerable to the slightest change to the economy. So businesses can turn to private lenders and invoice financing to finance the invoices that customers haven't yet paid. Although it means not receiving the full amount for the invoice, it allows the small business to attain cash flow faster. Besides, the business saves time in not having to track down payments. The lender takes on that risk and responsibility when financing invoices.

Banks that offer a credit line for accounts receivables requires providing audited financial statements, something few businesses can do. This enables the bank to confirm the invoices are real. How much the lender pays for the invoices can vary from as high as 90 percent to 75 percent depending on the business credit risk, often judged by size and reputation.

Supply chain finance companies are another option. They work with large companies who bring in the small businesses. While this program gives small businesses the kind of financing rates that big businesses get, they must rely on servicing a big company to get them into this system.

Not all is bad news for small businesses. Invoice financing options with reasonable rates do exist. You can find and increase cash flow faster than you think without paying exorbitant rates. The key is to find them by researching and asking questions about working capital. Private lenders have more flexibility than banks and tend to turn around paperwork and qualifications faster. The point -- small business do have options. They don't need to wait for the economy to improve or hope a bank comes through in six months to a year.