Paragon Financial Group is funding during the COVID-19 crisis.

It’s Time for Small Business Factoring

Its Time for Small Business Factoring

Bank loans to small businesses continue to be very difficult to get.  Now is the time to look into small business factoring. FDIC data show a 19.1 percent decrease in small business loans ($1 million or less) outstanding since 2008. In 2007, $686.8 billion in loans were issued, compared with $587.8 billion last year (see chart).   Loans to midsize and large companies increased 12 percent increase to $1.9 trillion in 2012.

The $30 billion Small Business Lending Fund launched in 2010 dispersed only $4 billion.  Most community banks found the program’s requirements unrealistic plus the Treasury Department was slow to approve applications. The department reported 933 of the 7,700 or so community banks participated in the program.  Many of those used funds to pay back the Troubled Asset Relief Program.

“What we are witnessing is the classic dilemma,” according to Andrew Sherman, a partner at Jones Day in Washington who advises small and midsize companies on corporate finance. “When the banking industry gets soft and becomes risk-averse, small business lending is the first to go and the last to recover.”

It is more difficult for bankers to value business credit risk, Sherman said. As company balance sheets move away from tangible assets such as inventory, equipment, and real estate toward intangibles. Intangible assets are brands, technology, and relationships. Commercial bankers are having trouble figuring out how to secure their loans. This shift has made emerging growth companies look for alternative financing options.

One of those options is factoring.  Factoring companies like Paragon Financial look at the small business clients credit.  Meaning your small businesses credit risk is not an issue with factoring programs such as receivable factoring to purchase order financing.   This allows many more companies to receive funding.   Paragon Financial also works with companies with tax issues or other non-bankable problems, increasing lending opportunities for small businesses of all industries.


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