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The increasing role of accounts receivable lending in the small business and government contractor industry can be attributed in part to tight credit conditions throughout the economy. Banks and traditional lenders are leery of making new loans to unproven businesses; in some cases, they may even reduce or pull credit lines without warning, leaving contractors without the resources necessary to meet their financial obligations. An article published in Bloomberg BusinessWeek in September 2011 describes the obstacles facing smaller businesses and contractors in the financial marketplace and outlines the role of accounts receivable financing in filling the current corporate credit gap.
Factoring, Accounts Receivable and Managing Payment Gaps
The BusinessWeek article describes the difficulties experienced by Phoenix company Infincom and its owner, Tiffany Bucher, when the bank suddenly froze the corporate bank accounts and closed Infincom's line of credit. Worries over pending litigation prompted this move despite the company's continued ability to pay its bills. Bucher turned to factoring to make payroll and meet other operational obligations. Rather than waiting for clients to pay on their outstanding invoices or service agreements, Bucher sold those financial agreements to an asset-based lender at a slight discount. Invoice-based loans offer similar advantages for companies struggling with the payment gap between the time services are rendered and the time when clients pay the invoiced amounts.
Working around the Banks
While traditional banking finance arrangements continue to predominate among government contractors, smaller firms may encounter the same difficulties experienced by Infincom and its owner. The reluctance of banks to commit to their small business customers has led to countless cash flow difficulties among these firms and can undermine their chances of success. In the government contract field, these unexpected withdrawals of established credit can lead to lost opportunities and default on service and supply agreements. Accounts receivable (A/R) lending can deliver added funds within days to keep contractors on track to manage their government obligations.
Quick Answers for Unexpected Problems
A/R lenders can typically provide contractors with a decision within days of application. This rapid response time can allow small government contracting firms to manage unexpected cash flow problems quickly and with minimal stress. Most asset-based lenders can fund approved loans within five to seven business days, making them one of the fastest solutions in the financial services marketplace.
Companies like 1st Commercial Credit offer a full range of asset-based lending options that can help smaller government contractors manage their cash flow requirements and deal with unexpected setbacks. A viable alternative to bank loans, these lines of credit and lending arrangements offer fast turnaround times and responsive customer service in today's tight money environment.