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.

Why “Big Banks” Are Turning Down Working Capital Lines of Credit at a Record Pace (Part 2)

20:57 03 December in Blog
The Wall Street Journal reported on November 22 that “New Loan Rules Are on Tap.”  Small businesses who use Deposit Advance loans to even out their working capital shortfalls will now face restrictions as the Office of the Comptroller of the Currency will increase scrutiny on banks that make these types of loans.  The WSJ further reported that the implementation of these guidelines will push borrowers to payday lenders, pawn shops and others outside the banking system.  This regulation is a negative development for small business because most small businesses avail themselves of consumer debt programs that can be garnered by the owner for working capital.  This development will unfortunately increase the cost of capital and further limit small businesses access to capital.  With a bit of planning we can work around this legislation.
Going to a payday lender or pawnshop for financing should not be your first choice.  There are many secondary lenders and factors in the market that are reputable and in most cases are more flexible than banks.  These institutions are well capitalized, highly professional and would be very pleased to work with small businesses that have working capital needs and are growing.
An example is Capstone Capital Group, LLC (of which I am a Principal) provides Working Capital by purchasing your Accounts Receivables and unlike other companies in the same line of business, there are no long terms contracts.  Capstone provides working capital at your request, only when you need it.  Our clients grow rapidly once they learn how to effectively deploy the capital we provide.
One of our clients is an electrical contractor.  Prior to working with us the company struggled to achieve sales of $5,000,000 per year.  The company was notified last year that its $1,500,000 revolving line of credit would be termed out to a 60 month term loan.  Just like we discussed in last week’s post, the bank was facing the option of classifying the loan or converting it to a term loan.  Following the conversion of the credit facility into a term loan we established a factoring facility for our client. 
For those who don’t know, factoring is a financial arrangement where a company (in this case, Capstone) purchases accounts receivable from another company.  The purchaser advances funds and assumes the credit risk.  Once the invoice is paid, the purchaser sends the balance collected less their fee to the company that sold the accounts receivable in the first place.
We negotiated a Limited Subordination Agreement with the client’s bank and began factoring their accounts receivable.  During the first few months of the relationship, the client factored selected invoices and began to bid on projects they could not bid on before due to their line of credit limitations (which prevented the client from taking on new jobs prior to previous jobs being paid).  Part of the bidding process requires disclosures regarding how companies will fund contracts if awarded.  Normally, a contractor indicates his available credit on his bank line.  However, by using Capstone, our clients can write “unlimited” because our credit approval process is based on the credit of the general contractor or the owner of the project, not solely our client. 
What seems like a minor change in the way our clients conduct their business have significant positive results.  From our prior example, Capstone knew the outcome would be positive but our client had no idea.  In summary:
  • Our client’s business changed from job to job (due to cash flow limitations) to a significant backlog of work.
  • Multiple contracts were awarded at good margins and suppliers were paid in advance of terms creating payment discount opportunities and increasing profit margins on already profitable jobs. 
  • Sales went through the roof.  Typically, Capstone’s clients grow on average by 15% to 20% per year.  This client went from $5,000,000 in sales per year to $13,000,000 in sales per year. 
  • Remember that pesky term loan for $1,500,000?  The loan balance as of the end of the 3rd quarter was below of $750,000.  The bank was (and still is) happy to have us involved and began referring other clients to us who had similar problems.  
  • Fortunately for us, this is the norm for our clients rather than the exception. 
What is your back up plan if your bank decides to term out your credit line or you are denied a working capital line of credit?  Lay off some of your valuable staff?  Turn away good and profitable business?  You can turn a negative event into an opportunity to grow your company with Capstone Capital Group, LLC.
Visit our website or connect with us on LinkedIn or respond below should you wish to discuss this further.

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