Washington is now chiming in and pushing banks to start lending again. If I am not mistaken this is the same group that several months ago grilled the Nations largest banks on weak underwriting practices. The president is quoted as saying "It's time for those banks to fulfill their responsibility to help ensure a wider recovery, a more secure system, and more broadly shared prosperity,
As a small business owner it is really interesting watching the economic recovery play-by-play on the nightly news. The battle of economic philosophy will have long reaching effects based on who wins the battle, and reminds me of President Reagan's quote, "I'm from the government and I'm here to help" Regardless of your political persuasion, it imperative that they pick a direction and / or policy so the rest of us know how to play the game going forward.
As stated above, even if the government can urge banks to implement new loans, unless based on sound underwriting policies, newly empowered regulators will step penalize banks not following recently passed policies. It is the proverbial catch 22 … What comes first, additional lending to stimulate economic recovery or sound underwriting policies to limit further losses?
We are not out of the soup yet. In a recent Senate Banking Committee Hearing, Sheila Bair Chairman of the FDIC was on the panel. What I found interesting in her testimony was how many banks failed in the past two years and her outlook going forward. We do not hear about this on the nightly news, but 25 banks were taken over in 2007 and 100 failed in 2008. Furthermore, Bair would not confirm a number for 2009 take over candidates though she said the FDIC projects 2009 and 2010 would look more like 2008 meaning another 200 banks are on the watch list.
Why is this important? If your business is currently borrowing from one of the troubled banks, chances are your lending arrangements will change. Another way to secure ample working capital and a sound cash flow model will be by factoring account receivables. Accounts receivables factoring companies will provide funding based on the financial strength of your customers and will continue to provide working capital as companies grow.
Invoice factoring fees are a bit more than traditional bank financing however factoring is much more flexible and factors will encourage growth. This is an important point for companies looking to grow, and by factoring account receivables small business owners will have the ability to stimulate their own economy.
Obama recently pointed out that banks benefited from the government's taxpayer-funded $ 700 billion TARP program, and it is now the banks turn to step in to help small businesses. The Washington elite are focusing on the increasing disconnect between Main Street and Wall Street, especially since the Dow Jones looks to have reclaimed by passing the 10,000 mark.
All recent indicators show traditional banking and lending policies are going to be at best difficult for small business owners. By factoring account receivables, companies can un-tap an endless source of working capital for growth, and then shift back to a more traditional banking relationship as the lending environment stabilizes.