Extinction of Small-Business Credit Moves Factoring into the Limelight

Because it’s become increasingly harder for businesses to obtain bank financing, there is a general misunderstanding that accounts receivable factoring firms are booming in today’s economy.  However, the decrease in bank lending has not led to an increase in factoring.  On the contrary, businesses tend to use factoring companies because they do not meet the general lending criteria (i.e. profitable operating history, meaningful collateral) that banks require in order to extend credit.. On the other hand, with the number of alternative credit and lending sources drying up, the factoring industry will soon see an increase in business.


According to the National Small Business Association, 59% of America’s small businesses depended on credit cards for their daily operations in April (up 15% from last year).  Although small business credit accounts for roughly 11% of the revenue for Visa and MasterCard, as reported by David Robertson of The Nilson Report, the credit card industry cannot afford to take risks with struggling companies.


As mentioned in a previous factoring blog post, New Credit Card Reform Law Excludes Small Business Cardholders, President Obama’s recent credit card reform plan does not include small business cards.  However, there has been a congressional push to extend the reforms to small businesses, which limit extreme fees and interest rate hikes, but it will be a stretch when considering the delinquency rate among small businesses recently exceeded 12% (2% higher than the consumer delinquency rate).


The recent small business credit card changes are quickly affecting business owners’ ability to operate.  According to an article from The New York Times entitled “A Credit Squeeze for Small-Business Owners”, Floridian Jeannie Macone, who owns a home décor business, saw her interest rate jump to over 30% as well as her credit limit plummet to a measly $5,000.


Even though small business credit card financing is becoming harder to obtain, there is still one viable funding option available to small business owners trying to grow– Factoring.  Instead of waiting weeks or months to be paid by their customers, medical staffing and medical billing start-up companies could sell their receivables to a factoring firm and receive cash immediately.


What’s more, since banks are decreasing credit lines and raising the interest rates for small business credit cards, they will be looking for a new way to finance their business. So keep in mind that factoring brokers and cash flow consultants have an excellent opportunity right now to find new business and earn factoring commissions.