Stake for Small Business Owners this Election Season

What’s at Stake for Small Business Owners this Election Season

19:40 29 June in Blog

Stake for Small Business Owners this Election SeasonU.S. presidential elections are a marathon, not a sprint, and this race has been exceptionally grueling—both for the candidates and the public at large. But more concerned than the average U.S. citizen are small business owners, who have responded to the uncertainty by delaying new hires, forgoing new equipment orders, and avoiding all but the most essential investments. We’ll tell you why confidence is slipping and what small businesses can do to buck the trend.

An Unprecedented Election Season?

Every presidential election captures the nation’s attention, but this year’s race seems to have no precedent. Whereas most Americans tune into the race after the primaries are over and the Republicans and Democrats have chosen their respective nominees, both parties saw unconventional candidates challenge the status quo during the primaries and capture the attention—and votes—of millions. Now that the primaries are over and Donald Trump and Hillary Clinton are set to face off in the general election, the future and the direction we’re heading remains as unclear as ever.

Small Business Owners Uncertain

According to a survey conducted by the Wall Street Journal and Vistage Worldwide Inc, one-third of business owners report that uncertainty over the coming election is negatively impacting their business.

Though small business owners are responding in different ways, the overarching theme is this: they have opportunities to grow their businesses, but they’re hesitant to spend the money. It’s not just the election causing concerns—there’s also global concerns, like the recent exit of the U.K. from the European Union, which threw global markets into a brief tailspin and the tenuous state of the Chinese economy. Closer to home, there’s also uncertainty over the timing and impact of future interest rate hikes.

Small-Business Confidence, by the Numbers

Given the picture we’ve just painted, it’s no surprise that small-business confidence fell to its lowest level since November of 2012 this month. Even industries that consider themselves ‘immune’ to political drama, like real estate, construction and development, are seeing activity dwindle. In the end, small businesses off all types face higher cost of capital than their larger counterparts, and that’s why they bear the lion’s share of the burden when uncertainty prevails and consumers reduce spending.

Luckily, there are several tools that small businesses can use to seize opportunities for growth—regardless of the prevailing political and economic climate.

Capstone Helps Small Businesses Boost Working Capital and Grow

For qualified clients, Capstone provides purchase order factoring, single invoice factoring, and full-contract factoring for work performed under contract with credit-worthy accounts. We have highly experienced professionals on staff to facilitate the purchase of work in progress and progress billing-related accounts receivable. Please visit our homepage or contact us directly for more information.

How to Grow Business in an Unnatural Economy - Capstone

How to Grow Business in an Unnatural Economy

21:58 15 June in Blog

How to Grow Business in an Unnatural EconomyStalled growth, disappearing jobs and a sense of foreboding are the defining characteristics of today’s economy. So, what or who is to blame? According to one theorist, the process of “creative destructions,” whereby the death of one business or industry gives rise to another, is failing. We’ll tell you why it’s happening and show you how Capstone’s single invoice and full-contract factoring allow businesses to grow along with demand, avoid taking on additional debt, and improve their balance sheets organically—even in an economy stuck in limbo.

The Numbers

A sobering job report released earlier this month showed the creation of only 38,000 new jobs —124,000 fewer than had been predicted — which is the lowest monthly total since September 2010. Furthermore, the Bureau of Labor Statistics reported that 94,708 Americans were not participating in the labor force during the month of May, bringing the participation rate to 62.6%.

A Limited Recovery

There’s no doubt that we’ve recovered from the Great Recession. The stock market has been on a 7-year bull run—although it has been tested recently. If you’ve tuned into the rhetoric coming out of the presidential race, you’ve heard the conviction that the recovery has been rather one-sided—that the gains of the last 7 years have benefitted a select few while the majority of the population has been left on the sidelines. No matter where you stand politically, the notion of a limited recovery seems to be supported by an analysis of Census Bureau data.

A Tale of Two Counties

According to the Census Bureau, the net increase of new business establishments is just 2.3% since 2010. Compare that with a 6.7% net increase during the 1990 recovery and a 5.6% net increase during the 2000 recovery. What’s worse—over half of the 166,000 new businesses formed in the United States since 2010 are located in just 20 counties. In short, a select few geographic areas are prospering, and the rest of the country is losing businesses and losing jobs at an alarming rate.

Aggressive Oversight and Misplaced Regulation

Touted as the culprits of the financial crash, banks and financial institutions, the drivers of growth since time immemorial, have been forced to tighten their lending requirements. The unintended consequence, of course, is that businesses’ traditional sources of credit have dried up. An enduring irony of the Dodd-Frank Act, which among other things was designed to limit the size of financial institutions, is that its burdensome requirements have actually forced many small community banks out of business—making the Big Banks BIGGER, not smaller.

If a lack of funding weren’t bad enough, businesses are now contending with rising federal regulatory compliance costs and state licensing requirements. And here the bitter irony continues. The new wave of regulations have disproportionally harmed small businesses—the symbol of the American Dream and American industriousness—not the large corporations the regulations were meant to control. A report ordered by the U.S. Small Business Administration found that the per-employee cost of federal regulatory compliance was $10,585 for companies with 19 or fewer employees. Companies with 500 or more employees, by contrast, paid an average of $7,755 per employee to stay compliant. Added to compliance costs are a rapidly multiplying number of state and local licensing requirements. 5% of employees required certificates or licenses in 1950. Today, the number stands at 30%.

A Metaphor for our Economic Ecosystem

There are many apt metaphors that describe what’s happening to the U.S. economy, but one of our favorites has to do with Smoky the Bear and forest fire prevention. Forest fires aren’t pretty, but they’re a natural and necessary phenomenon. They clear away the old, dead wood and give new generations of plants the space they need to grow. If the old, dead wood remains propped up for too long, the ecosystem ends up with less growth, less diversity, and a few individuals soaking up all the sunlight. And when a fire does finally come along, it’s much bigger and more destructive than it ever needed to be.

Boost Working Capital with Capstone

Capstone gives small and midsize businesses that are negatively impacted by Dodd-Frank and other constrictive legislation the working capital needed to seize opportunities for growth. For qualified clients, we provide single invoice factoring, construction factoring and full-contract factoring for work performed under contract with credit-worthy accounts. We have highly experienced professionals on staff to facilitate the purchase of work in progress and progress billing-related accounts receivable. Please visit our homepage for more information.

Interest Rates Predicted to Rise - Capstone Explained

U.S. Economy Picking Up Momentum in Q2; Interest Rates Predicted to Rise

19:56 27 May in Blog

Interest Rates Predicted to Rise - Capstone ExplainedAfter another harsh winter, the American economy is stabilizing and beginning to shrug off concerns of a prolonged slowdown or recession.

According to the latest economic gauges, industrial production is increasing, inflation is firming, and the housing sector is continuing to pick up momentum. All of these factors, combined with data reflecting retail sales rebounds, job gains, and rising consumer confidence, point to improved — though still less than spectacular — growth potential for the second quarter of 2016.

Interest Rates

Fed officials afraid of financial market volatility and poorly performing overseas economies have kept a steady hand on short-term interest rates throughout 2016. A domestic growth rebound in Q2 could be just the inspiration they’ve been looking for to raise rates this summer. Their next opportunities come at the policy meetings scheduled for June, July, and September.

John Williams, President of the San Francisco Fed, recently told the Wall Street Journal that the data is starting to make a strong case for rate increases not just in June, but potentially more than once in the next few policy meetings.

Despite Positives, Some Forecasters Remain Cautious

First quarter 2016 gross domestic product (GDP) increased only 0.5 percent over Q1 2015, but growth might be poised to accelerate.

Since the end of the recession, Q1 GDP growth has consistently been weak, followed by a rebound in Q2. The latest reports of modest but definite growth in highly important sectors would suggest that the same pattern is about to repeat itself in 2016.

Macroeconomic Advisers, a forecasting firm, estimates that GDP will expand at a rate of 2.3 percent this quarter. The Federal Reserve Bank of Atlanta estimated an even higher growth rate of 2.5 percent.

However, it’s not all sunshine and roses. Despite all the positive data starting to roll in, many forecasters are still leery about the economy’s current health as well as its general outlook for the future. Earlier in May, a Wall Street Journal survey of economists revealed an estimated 20 percent chance of a recession taking place in the U.S. sometime in the next 12 months.

Boost Working Capital with Capstone

For qualified clients, we provide purchase order factoring, single invoice factoring and full-contract factoring for work performed under contract with credit-worthy accounts. We have highly experienced professionals on staff to facilitate the purchase of work in progress and progress billing-related accounts receivable. To learn more, please visit our homepage.

Novel Way for Subcontractors to Find Financing from Capstone

A Novel Way for Subcontractors to Find Financing

20:13 11 May in Blog

Novel Way for Subcontractors to Find Financing from Capstone2015 was a picture-perfect year for construction, a banner year for the post-recession. Yet in 2016, many contractors in the United States are struggling to find financing for construction projects.

The lack of financing has been a reality even over the past several years with the economy recovering by leaps and bounds. It was a reality throughout the housing crisis and even prior to the recession when construction and development were booming. Contractor business financing has been a struggle, but it’s clearly nothing new.

Banks’ Aversion to Construction Financing

Banks are perennially gun-shy when it comes to lending to construction firms. They cite the industry’s volatile revenue fluctuations, the unpredictable nature of construction, contractors’ sensitivity to economic cycles, and excess competition as reason to stay away. The recent failure of several prominent construction firms has only strengthened banks’ resolve to avoid offering lines of credit to construction firms, contractors and subcontractors.

Contractors & Underwriting Issues

Steady bank relationships are often out of reach for construction firms with a poor ratio of accounts receivable to accounts payable and limited liquidity in working capital. But when construction firms and contractors struggle to find financing, subcontractors tend to suffer even more. Banks are hesitant to allow subcontractors’ bonded accounts receivable to serve as collateral for lines of credit, and those who primarily engage in bonded work often find it difficult or impossible to provide additional collateral.

Is there any hope for subcontractors in today’s construction industry?

Factoring: A Solution for Subcontractors

Factoring is a finance technique that allows a company to leverage its accounts receivable and accelerate its working capital through the sale of its accounts receivable to a third party. Specifically, a factor gives a business an advance on a customer invoice — generally between 70 to 90% of the invoice amount – so they can create a backlog of work without equity or debt financing. As the company improves their balance sheet, they increase the likelihood of receiving a traditional line of credit from a bank.

Seize Opportunities for Growth with Capstone

For qualified subcontractors, Capstone offers contractor financing and provides a single invoice and full-contract factoring for work performed under contract with a creditworthy general contractor. Capstone has highly experienced construction professionals on staff to facilitate the purchase of construction-related accounts receivable. To learn more about our contractor business financing and other services, please visit our homepage.

Market Woes Affecting Online Lenders - Capstone

Market Woes Affecting Online Lenders

11:54 08 January in Blog

Market Woes Affecting Online Lenders - CapstoneThere’s a great deal of uncertainty in the market right now. The Fed has already increased their target short-term rate from 0.25% to 0.5%, and they’re planning on increasing it incrementally throughout 2016. In recent years, online platforms like LendingClub Corp. and Prosper Marketplace, Inc. have challenged banks’ hegemony in the lending industry. Today, we’ll discuss how the rate hike and other developments have had a negative effect on online lending platforms and ask whether or not they’re here to stay.

Online Lenders Arrive on the Field

Online lenders find borrowers and sell their loans to investors. Using comparably low operating costs and working with investors with low yield expectations, they’ve had considerable success. According to a Wall Street Journal analysis of securities filings, marketplace loan funds raised $8 billion in 2015, over six times the amount raised the year before. Recent market woes are pinching the numbers, however, and putting online lenders’ niche at risk.

Online Lenders Forced to Raise Rates

Funding for consumer loans has started to show signs of damage. Among the recent ills are delayed deals, increased funding costs, and declining prices for securities backed by the loans. Many online lenders will require borrowers to pay higher borrowing costs. LendingClub Corp., for example, raised their interest rates by 0.25%, matching the increase by the Federal Reserve in their short-term rate. Citigroup Inc., which has sold over $1 billion in loans from Prosper, is now offering higher and higher yields to entice investors to buy. The end result will either be rising costs for borrowers or diminishing margins for investors and the lending platforms they work with.

Growth of Online Marketplace Lending in Doubt

The volume of loans made by online platforms like Prosper and LendingClub have surged in recent years, and investment vehicles that buy marketplace loans have grown as well. Now, experts are wondering if the growth will continue. In October, Stockholm-listed P2P lender TrustBuddy collapsed after serious misuse of client money. Poor stock performance by several major U.S. platforms is another cause for concern in the industry—as is the pullback of credit that has forced some high yield mutual funds to halt or close redemptions. In the end, it remains to be seen whether the recent poor performance by online lenders is an aberration, or something here to stay.

Financing with Capstone

Capstone uses unique underwriting strategies to provide accounts receivable invoice factoring, PO financing, and trade finance to small businesses, subcontractors, licensees, and distributors. For more information, please visit our homepage.

Funding Your Startup

The Pros and Cons of Funding Your Startup through Credit Cards

20:38 06 October in Blog

Is funding your startup through credit cards a viable solution? After all, not every aspiring entrepreneur is lucky enough to qualify for a business loan. We’ll tell you the risks of funding your startup with credit cards and some alternative strategies you can explore.

Tempting Low Cost

In some cases, for $5000 to $10,000 you could launch a startup and it can be a tempting motivation for using credit cards. Several successful startups have gotten their start this way, including the Tropolis group. In the recent economic climate, many starting entrepreneurs find themselves without the collateral to start a business, and credit cards seem to be the only option. However, building a business that relies on funding from clients can be risky when using credit cards, because a late payment from a client can lead to a late credit card payment. Interest payments could accrue.

Organization is Key

Funding your startup through credit cards also requires a high level of organization if you want to keep your debt low. To ensure you do not get in over your head with debt, you’ll have to pay the credit card bills in full every month to avoid accruing interest payments. It may seem like common sense, but organization skills are key to remaining out of debt – it’s easier said than done.

Transitioning to Sustainable Funding

Even if you’re starting your business by relying on credit cards, your long-term strategy needs to change. You should plan to rely on revenue from customers. Using credit cards to fund long-term infrastructure, or even salaries for employees is a good way to end up in debt. Pay off your debt. Potential investors are not keen on seeing it.

Ultimately, the choice is up to you. Just know that there are better options out there, like purchase order financing and trade financing, both of which are available at Capstone.

For more information on lending options that are tailored to your business needs visit our homepage. Check back in on our blog from time to time for more industry news and analysis.

A Case Study From Capstone

A Case Study From Capstone

22:07 18 February in Blog

A Case Study From Capstone

Through the use of Capstone’s unique funding programs, our clients take advantage of opportunities that would otherwise be lost as a result of being undercapitalized. One of our most recent success stories is an interior design firm that was the successful bidder for a Fortune 100 pharmaceutical firm. They required a renovation of the electronic skylight shades for the employee cafeteria.

See Our Current Case Studies Here

The challenge our client faced was a lack of credit, which made the matter a COD transaction. Because the transaction size was in the six-figure range, the client would have had to forgo the opportunity entirely, were it not for access to capital.  Prior to receiving the order, the client applied for a funding facility with Capstone Capital Group, LLC.  When the order was received, the client was entered in our system and we began assisting them immediately.

Long lead-time was another client concern. The order was placed in early November with a late January installation date.  The COD terms required a significant sum of money to be tied up for about 90 days if the terms were kept at COD.  Capstone entered negotiations with the custom shade manufacturer with the client’s participation and arranged for credit and payment terms that were acceptable to all parties. In the middle of January, the shades shipped to an authorized installer’s warehouse as part of the transaction negotiated by Capstone.  Following a few pre-installation meeting with managers of the physical plant, the shades were delivered to the site. The old shades were demolished and remove and the new shades were installed.

As a result, the work was completed and accepted by the Fortune 100 Company, fulfilling the contract between our client and their customer. The client billed the account, Capstone factored the invoice and in March, Capstone will make final settlement with the interior design firm.

The key points to take away from this case study are as follows:
-Capstone client receives six-figure interior design contract and needs capital.
-Capstone client on COD terms for entirety of project with vendors.
-Capstone works with client to create liquidity and structure a PO Finance transaction to create credit with all vendors.
-Custom goods are ordered.
-Custom goods are received, demo is completed, and new shades are installed.
-Work is accepted and completed by Fortune 100 customer.
-Customer is billed.
-Invoice is factored, retiring the PO advances.
-Client receives working capital.
-Accounts receivable is collected.
-Client receives profit.
-100% leverage, 100% of the time.

Capstone Capital Group, LLC provides clients with the capital they need to fund projects. For years, we have helped organizations get the immediate cash they needed without the typical red tape that most banks require. For more information about Capstone and our Single Invoice Factoring, give us a call today at (347) 821-3400 and speak to a representative.

Why “Big Banks” Are Turning Down Working Capital Lines of Credit at a Record Pace (Part 3 – Dodd Frank Does It Again)

20:20 11 December in Blog
Community Banks are closing their doors because of the cost of compliance.  Small Business pays with less access to credit.  Unintended consequence of one size fits all regulation schemes.
WSJ Headline “Tally of US Banks Sinks to Record Low” on December 3, 2013.  There were many banks that failed as a result of the financial crisis, but-the real impact of the reduction of banks in the US is on small businesses that rely on credit from Community Banks.  This means less credit for small businesses who rely on the Community Banking network for working capital and lines of credit
Community Banks are bearing the brunt of Dodd Frank because of the costs of compliance with the new regulations and are closing as a result.  The new regulations are being enforced through out the banking system even though throughout the financial crisis Community Banks were not the cause of the crisis or nor even a significant portion of the crisis could be attributed to Community Banks.
Community Banks are smaller banks with several hundred million dollars in assets that are typically formed by successful local businessmen and women.  Their typical business plan is to stimulate the local economy by lending to other small businesses that large banks tend to avoid.  These smaller businesses require more support than a typical money center or regional bank is able to provide.  However, their presence in small markets and even in major metropolitan areas such as New York City is vital to the strength of small business and their ability to grow.  They provide accounts receivable lines of credit, equipment loans, real estate loans and in some cases even accounts receivable factoring.
Community bankers work on the principal of the Three C’s: Credit, Collateral and Character.  Large banks work off of computer models that determine whether or not you will be granted a credit line.  In most cases cyclical business, which many small businesses are characterized as, do not stand a chance against the money center or regional bank’s computer models as they are regularly rejected.  The beauty of a Community Bank pre Dodd Frank was that the small business owner could sit down with their local community banker to review the collateral, demonstrate they have good credit and character and establish a credit facility to help grow their business.  In the alternative, if there was not a chance that the bank could lend to a small business they would let them know immediately.  There is a benefit to a fast “No”.
We see this time and time again in our business at Capstone Capital Group, LLC.  Clients tell us they our factoring services as a backup to the line of credit they are applying for.  We can see immediately that there is no chance they will be approved by the money center or regional bank’s computer model.  However they go to the bank and apply through a business officer who is not trained to prequalify the applicant.  Several weeks are wasted in preparing and presenting all sorts of information that is required as part of the application process.  Once the loan request is denied, the business owner cannot make up for the lost time consumed by the lengthy application process that resulted in a denial of credit. 
Most non-bank financial institutions that support small business act like the pre Dodd-Frank community banker in many ways.  The Three C’s are employed because they take the time to understand the customer’s business and attempt to craft a program that will help the customer grow. 
Speaking from experience, we were in need of a $10,000,000 letter of credit facility to support our trade finance business.  We went to one of the large banks that you see on every corner in New York City where Capstone Capital Group, LLC has its operating accounts.  We advised the bank that we did not want to borrow from them, but instead we wanted to give them money so our letters of credit were cash collateralized.  You would think this is a pretty safe credit facility; after all we are giving them cash as collateral.  Although we were using our own cash to collateralize the “credit facility” we still had to provide a significant amount of both business and personal information.  This was understood since they are regulated by the federal government. 
What we were not prepared for was the approval process.  The bank actually wanted us to put up $20,000,000 for a $10,000,000 credit facility.  The process would work in the following manner:
  • A $10,000,000 deposit would be used to establish the letter of credit facility 
  • When letters of credit documents were presented we were not able to use the $10,000,000 that had already posted as collateral to pay for the goods purchased under the letter of credit. 
  • New funds would constantly be needed to provided the bank to cover the drawings under the various letters of credit issued so the $10,000,000 in collateral would always be on deposit. 
We inquired as to the logic of this approach and we were advised that their system is completely automated and in fact there was no human intervention whatsoever. To ensure that they did not extend us credit without cash collateral we were required to have twice the value of the letter of credit facility available to the bank.  Needless to say we took our business elsewhere where the credit terms made more sense. 

The federal government wants small business to thrive and grow and hire new employees to reduce the unemployment rate.  However, the federal government’s policies have unintended consequences that actually stymie progress for small businesses.  Could you imagine the growth rates of small business in the U.S. if the regulations that restrict their growth and ability to borrow were relaxed?  There would be one hell of an economic recovery underway!!Visit our website or connect with us on LinkedIn or respond below should you wish to discuss this further.

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