Deceptive Headlines: Read the Fine Print
A headline from the Money & Investing section of The Wall Street Journal on January 30, 2014 was “U.S. Banks Start to Ease Limits on Lending”. What a casual observer would glean from such a headline is that the banks are open for new Business Loans. The article starts out very hopeful by describing how the new bank lending standards will “underpin” economic growth. As the data illustrates the positive trend of underwriting standard easement, the reporter waits until the very end to point out that “The trend extended to credit-card, auto and large corporate loans…”
Ironically, large corporate borrowers are the ones fortunate enough with access to the corporate bond market for long-term inexpensive debt capital. These borrowers have no need for Bank Loans unless they are making an acquisition or have a short-term borrowing need that was not accounted for when budgets were formulated for the upcoming fiscal year.
Most readers of this blog are small business owners. Small business owners end up being the ones with very limited options when it comes to Bank Financing. Typically under pressure for immediate financing, these businesses are more likely to be rejected while going through a bank’s underwriting process for a multitude of reasons related to risk, balance sheet, and other financial issues. Undoubtedly the first and foremost priority of banks is compliance with banking regulators which is discouraging to these enterprises. The demographic relies on second tier financing companies like Capstone Business Funding, LLC to help with Working Capital and Contract Funding requirements.
The article goes on to say that small businesses have been hesitant to borrow because of uncertainty related to the Affordable Care Act and rising taxes. On the contrary, most companies want to grow regardless of the regulation coming out of Washington D.C. The reason why Small Business Funding have been trending down is that more and more banks are not able to offer them. As a consequence, Alternative Financing has been the driving force that is providing working capital to small businesses. This financing comes in the form of Factoring, Purchase Order Funding, and Trade Finance solutions. Clients who are able to use these funding and financing techniques are growing and thriving regardless of the economic environment. It is one of the true bright spots in the uneven economic recovery we have all experienced from time to time over the last six years as we run our business operations and try to grow.