Small and medium sized businesses (SMBs) are the backbone of the United States economy. According to a 2019 report by the U.S. Small Business Administration Office of Advocacy, small businesses accounted for 44%, or two-thirds, of economic activity in the U.S. With the current shrinkage of the economy, many SMBs are left to face working capital challenges and are in need of alternative financing in order to manage their cash flow and grow their businesses. This is where receivables finance proves to be an excellent solution. Obtaining capital by means of receivables finance is typically faster and more cost-efficient.
Receivables finance is a form of financing that allows businesses to convert their open receivables into capital. The invoices on a business’s balance sheet are assets and can be used as collateral in order to secure funding. By selling these assets, businesses are able to facilitate the flow of funds that were once tied up in invoices with payment terms of 30, 60, 90, or even 120 days.
So, why is receivables finance the best finance option for SMBs right now? Here are a few reasons:
1. Fast funding: This process, especially with Crowdz, can happen as quickly as up to 72 hours after approval on our platform. The speed at which SMBs are able to obtain capital is a key consideration, as it can help businesses pay bills, purchase inventory, or cover other expenses quickly.
2. Access to funding: SMBs often struggle to access traditional financing options, such as bank loans and lines of credit. This is usually due to traditional options requiring large assets as collateral, which many small businesses lack access to. As mentioned above, the receivable itself is considered an asset, which is a much more manageable asset for SMBs to leverage.
3. Cost of capital: The cost of capital for receivables finance can be lower than other forms of financing, such as bank loans, credit cards, or overdrafts. It can also be utilized on an only-when-necessary basis, unlike loans that still accrue interest, even if it isn’t being employed. This can, ultimately, help SMBs save money and improve their bottom line.
During a recession, customers may frequently put off payments longer than usual due to their personal cash constraints. Small businesses are more likely to spend money as it is received which makes the timeliness of customer payments pivotal in keeping the business afloat. This creates a domino effect of late payments to vendors or manufacturers, which slows down all operations of the business. Because there is even less financing available during a recession, it is difficult for small businesses to borrow their way out of this.
In conclusion, receivables finance is the best finance option for SMBs right now as it provides working capital quickly, is easier for SMBs to access, and is many times more cost-efficient. With the challenges that SMBs are facing in today’s economy, this alternative finance solution can be a tool that helps businesses manage their cash flow and grow their business.
If you’re a small business that’s looking to utilize receivables finance, click here to get started.