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How small- to medium-sized businesses can navigate lending crisis

As banks collapse, the U.S. dollar is weakened by inflation and the Federal Reserve maintains its aggressive interest rate hike strategy, small and mid-sized companies are at risk.

Banking collapses and a weakened U.S. dollar have put a squeeze on many financial lenders, making it tough for smaller companies to find the working capital they need to stay afloat.

Whether it’s resources for a startup, money to pay employees or marketing dollars for business development, Marius Silvasan, CEO of eCapital, said "small- to mid-sized businesses drive the U.S. economy while generating much of the commercial activity in the marketplace."

The current economy’s impact on small businesses has been magnified by the banks, and particularly regional institutions, as they begin scaling liquidity to smaller companies, Silvasan added. 

"If they don’t have access to working capital to meet even the basic needs of running a company, they will likely not be able to stay in business," Silvasan said. 

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No. 1, Silvasan said, know your lender. 

"There are many factors to consider when evaluating your current, or any potential lender, including strong customer service, referrals from trusted sources, overall size, experience, financial strength, stability and reliability."

No. 2, "Take preemptive action," Silvasan added.

"If you’re concerned about your bank scaling down your line of credit, don’t wait for your bank to send you notice. Look for an alternative lender now," he explained. "Even if you aren’t reacting to red flags with your current financial provider, conducting research well before renewing an existing funding contract is well advised."

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Other key actions include researching the most flexible lenders, considering all options, understanding your needs and planning an early transition.

No. 3 is to drive operational efficiencies, ensure working capital under the current economic environment and evaluate business operations while identifying areas to control costs and operating expenses, Silvasan added.

No. 1, Silvasan said, "Don’t sit back and wait for your bank to send a notice. Ask questions of both your lender and potential lender to find the right partner."

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No. 2, don’t jump ship. 

"Moving to another bank may not be the solution," Silvasan cautioned. 

No. 3, don't sit on your hands. Find alternative forms of lending. 

"Over the last 10 years, there’s been an emergence of non-bank and digital lending platforms," Silvasan explained. 

"Tech-enabled financing platforms are quickly becoming the preferred option for many small- to mid-sized companies because of their multiple funding options to improve cash flow and provide quick access to working capital," he added. "Where some traditional banks fall short of meeting financial needs, alternative lenders can offer more flexible funding solutions to align with business goals."

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Silvasan said the ideal funding company is proactive and continuously developing service enhancements to further streamline funding and upgrade user experience, while continually improving its platform to offer more money, faster, and with more convenience.

Silvasan said smaller firms in the transportation and manufacturing sectors would be under the most pressure to secure funds until inflationary pressures cool and the Federal Reserve can put an end to its aggressive interest rate hike strategy.

"These industries are both dependent on consumer spending, which in part revolves around interest rates and inflation. The higher interest rates make it more expensive to finance purchases on essentials like fuel and crowd out spending for other items," Silvasan said. "With consumer spending down and interest rates up, along with supply chain disruptions brought on by the pandemic, these industries have experienced the more significant impacts."

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According to the Small Business Administration (SBA), there are 355,467 manufacturing firms with no employees, 187,862 with 1 to 20 employees, and 60,099 with just 21 to 499 employees.

Meanwhile, data compiled by usspecial.com shows there are over 500,000 trucking or transportation companies around the country, with more than 15.5 million trucks on the road and 2 million tractor-trailers.

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Of the half million transportation companies, 80% are considered small businesses with six or fewer trucks. 

Small- to mid-sized firms in health care are also at risk, following the COVID-19 pandemic, when facilities, staffing shortages and supply chain issues came under national scrutiny.

"Health care facilities need capital during this time, maybe more than ever," Silvasan said. 

"But even the ability to obtain financing is being affected as lenders and investors become more selective and reserved," he followed. 

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As of 2019, there were 487,613 health care companies in the small- to mid-sized business range, including doctors' offices, labs and diagnostics facilities, blood banks and outpatient venues, according to statista.com.

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