A recent report by CFO Research Services titled "Bridging the Liquidity Gap" attempted to evaluate the state of working capital availability for small and mid-size businesses. The report concluded that those companies "remain prisoners of the credit crunch".
"If anything, their bankers have grown colder, freezing them out by cutting back on commercial and industrial loans", notes the report. Another findings in new York Fed report show that three out of four small businesses that applied to banks for credit in 2010 got none or only some of the amount they requested, and 50% were rejected outright. At the same time reports show that lenders are becoming increasingly comfortable lending to large, established companies. The survey finds that while commercial banks "can borrow money at an exceedingly appealing interest rate - zero - banks are using it to cushion their liquidity, instead of putting it to work re-inflating the economy". Not surprisingly, financial executives view their financing prospects as severely limited.
At the same time, the surveys find that fewer small business owners have strong enough parameters to qualify for a loan. Commercial bankers face enhanced regulatory scrutiny which levy much more stringent requirements on a borrowing entity.
In this environment, the alternative lenders, providing asset-based lending and factoring, can bridge the financial gap to struggling business owners. These lenders can provide borrowers with the infrastructure that takes them from factoring, to asset-based lending to a line of credit. The surveys state that alternative lenders are optimistic about the prospects and anticipate the increase in sales to the new clients.
Latest News