Lending to small business was down a whopping 12.5 billion or 4.6% for the 7 months ending in November. That sobering news comes from the Treasury Department’s tracking of the 22 largest banks receiving bailout money.
Of course these stats are no surprise to business owners. Rebuffed by banks, they increasingly turn to factoring and purchase order financing for cash flow needs. The New York Times recently ran an article on the shift, highlighting individual companies that used purchase order funding last year when long-time bank loans had left them standing solo at the financing alter.
This alternative business financing market increased an astounding 80% in 2009 for one of the purchase order funding companies interviewed.
The article, entitled The Places They Go When Banks Say No, (by Andrew Martin, January 30, 2010) can be read at NYT online.
Purchase order (PO) funding provides a cash advance so the business can pay the source company manufacturing the goods. This allows the business to obtain the product, or materials needed to create the product, that will ultimately be delivered to the customer.
On the other hand, factoring provides cash through the purchase of invoices or accounts receivable at a discount for services rendered or products already delivered. Factoring involves funding after performance while purchase order financing requires funding prior to performance.
Both factoring and purchase order funding are in demand during the credit crunch providing opportunity for cash flow brokers and investors. To learn more be sure to read How I run My One Person Factoring Business, by Jeff Callender.
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