In the current economic climate, banks are hesitant to offer loans. Relief may be on the way from government bailouts and efforts to stimulate lending, or business may want to consider accounts receivable factoring as a solution to meet their cash flow needs.



Consumers aren't the only ones feeling the pain of the credit crisis - many businesses are finding it difficult to get a loan. In the current economic client, a business may be seeking a loan for two reasons. Tough times may force the need for more cash flow. Or, a business is hoping to take advantage of the potential opportunity to invest now, hoping for a greater reward in the future. The credit crisis has forced banks into a defensive position. Banks right now are hoarding their cash, and if they are lending money at all, are doing so with great reluctance. It is an unfortunate position that may continue for quite sometime. According to Business Week, ?in a recent survey by data firm Reuters LPC, 40% of lenders and loan investors said they didn't expect the credit climate to improve significantly until 2010, after the worst of the recession has passed.? There may be some relief on the way from the federal government. Merriam-Webster just announced ?bailout? as the Word of the Year for 2008. This should come as no surprise because the Emergency Economic Stabilization Act, a $700 billion dollar bailout of the United States financial system, was approved in October of this year. The act included plans to purchase bad assets (particularly mortgage backed securities), and inject money into banks. Thus far, $250 billion has been allocated to banks from the rescue package, plus additional monies to bail out banking giants like Citigroup. Bailout money is also being given to perfectly healthy banks. Essentially, the government is investing into banks to free up liquidity and encourage lending. Until banks loosen their purse strings, some companies are turning to a strategy called accounts receivable factoring or invoice factoring for their cash flow needs. In particular, small to medium sized manufacturing, distribution, and service companies find success with this method. Rather than wait to collect on receivables, an invoice factoring company will purchase an invoice (or many) at a slight discount. In addition to providing immediate cash flow, the invoice factoring company then claims responsibility for collecting on the debt. With companies going under at every turn, not having to worry about whether a debt will be repaid is a significant benefit. In today's economy the need for loans is still great. Businesses may find themselves presently strapped for cash, or may wish to take advantage of a potential opportunity. After all, it's been said that more millionaires were made during the Great Depression than any other time in history. Now, to call the current state of the economy a depression is an exaggeration, but it is true that the present environment may be an opportunity for some. Regardless for the the reason why a loan is needed, banks are hesitant to offer them. The solution is two-fold. One, have patience. It will take time for the government's relief efforts to have an impact. Two, consider creative solutions like invoicing factoring to provide immediate cash flow.