Small Businesses Say They Lack Sales (Not Funding)

A recent article from the WSJ says that small businesses lack sales - not credit. I find this interesting because a common complaint from businesses is that they lack credit.  On the other hand, some banks are complaining that they lack qualified customers. It's a nice catch 22.  I wrote about this here.

This point of view - lack of demand - makes sense to me. Although most agree that the USA is not in a technical recession - it sure feels like one. Also, and from my perspective, I am hearing this indirectly from prospects. A few years ago, companies called requesting factoring because they needed the business financing to grow the company. Now, a large proportion of prospects get financing to help ensure that they companies work smoothly... in preparation for "future" growth.

I don't think there is a single culprit for in the "sales vs. financing" dilemma. Rather, it's a combination of things. Basically we have four factor in play:

1. Some companies are not seeing demand for their products/services
2. Companies that ARE seeing demand, are having a tough time getting financing to meet the demand
3. Companies are in such tough shape that few banks are willing to offer them financing
4. Banks are in tough shape and can't offer financing

This creates a nasty viscous cycle. To complicate matters, it's difficult for a company to determine which lending institution is in good shape and which one is not. And you can bet your banker won't tell you! This makes finding a financing source very difficult. The mismatch between companies that need credit and banks that can offer it is  one of the drivers that is sending companies to alternative sources (such as invoice factoring).

So..... now what? Well, something has to give to break this cycle. In my view, it will have to be credit availability for the simple reason that it's easier to control than consumer demand. What does this mean for factoring companies? If the economy continues its recovery, I think we will see some robust demand as the industry can act as an alternative source of financing for some businesses.