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Could Factoring Save Small Businesses From Closing?
Could Factoring Save Smaller businesses from Shutting down
?The most up-to-date news is the fact that to date, federally backed loans to small enterprises in Southern California and throughout the nation are increasing as more banking institutions engage in federal lending programs. Stepped-up lending through the Small Business Administration (SBA) is ultimately on its way when thousands of small enterprises say they are in major trouble from a lack of funds. It raises the question - can a 4,000 year old business technique referred to as invoice factoring help save small businesses?
For many small to medium-sized businesses, the assistance arrived too late, so they was required to shut down. The Bureau of Labor statistics and research shows about 4.3 million enterprises with nineteen or fewer workers shut down during the fourth quarter of 2007 through the 4th quarter of 2008. Approximately 627,200 fresh employer companies started operations in 2008, while there have been about 595,600 firms that shut down. According to the Small Business Administration (SBA.) By October of 2009, there were nearly 90 percent of family owned businesses in the United States coming from classic small enterprises to a third of Fortune 500 companies
In February of 2009, the government signed the American Recovery and Reinvestment Act of 2009 in order to jumpstart the United States economy and also to help save millions of careers. The Act was an extraordinary response to a crisis and it has gone down in history as nothing just like it since the Great Depression.
Based on the government's SBA and American Recovery Capital Program (ARC), 46,000 overall SBA loans, of which 7830 small enterprise ARC loans have been offered across the country since inception. Unfortunately, this shows lower than 1 percent of the small business population.
These ARC loans are unable to go over $35,000 and the ARC program is timetabled to end September 30, 2010 or when allocated finances are no longer available. Recipients can only acquire one ARC loan. In a nutshell, loan amounts are confined and the plan is due to expire in the near future, after that what exactly happens? We have a very long path to take for recuperation and a lot of businesses are continue to unable to be eligible for a SBA and ARC loaning.
Factoring provide both a shorter term and long term resolution for small company. It's rapid and productive and in contrast to a loan, it does not show up on the balance sheet. It is a "use it when you'll need it" service and won't reach its expiration date.
Invoice factoring is basically a "use it when you'll need it" financing option, thus each and every invoice purchase is a separate financial transaction and doesn't form a part of a portfolio lending strategy. The transaction is patterned as a buy-sell deal. Actions include:
* Due Diligence - As soon as contacted by a possible customer, IFG undertakes an intensive due diligence program that usually involves about 24 to 48 hours.
* Evaluate Invoices - Once the due diligence is completed, the customer is at liberty to provide invoices to IFG for sale.
* Credit Verification - Upon receiving the invoices, IFG will look at the credit of the debtor named on each invoice and make sure the sale represented by each invoice have been satisfactorily carried out.
* Debtors' Notification - Once credit has been confirmed, every debtor is informed of the buy by IFG and the client is paid out for the invoices.
* Debtor Payments - At the end of the credit time the debtor will make payment instantly to the factoring company hence completing the transaction.
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