WSJ – Asset based lending = popular

You may have seen Ftrans and one of our client’s featured in the Wall Street Journal article, “Asset-Based Lending Grows in Popularity.”   We’re happy to be associated with such success stories as Seth Chapman and Weezabi and know that many other businesses are benefiting from these types of services as the stigma of asset lending wears off (and the traditional credit markets remain dry).  Asset based lending is no longer viewed as “lending of last resort.”   As a matter of fact, it is increasingly becoming a preferred form of financing.    As indicated in the article, asset based lending (excluding mortgages) grew by 8.3% in 2008

The data supports this trend.   According to the FDIC,  traditional, commercial lending is DOWN 14% Sept. 2009 over September 2008.   Thus, we have every expectation to believe that asset lending will have grown significantly in 2009.  When it comes to providing growth and working capital to small and medium businesses, asset based lending is carrying the day.      

The moral of the story is two fold (1) Consider tapping your assets such as receivables for access to capital and (2)….. If you need a whole buch of creatively designed t-shirts, call Seth — He’ll take care of you.

Shadow Falls on Credit for SMBs

Recently I met with one of the Managing Directors of Equities at Sandler O’Neill, investment bankers and research analysts to financial institutions.  Our conversation centered on the current state of the capital markets, a topic very important to FTRANS as our mission is to provide small and medium businesses access to the cash flow they need to run their businesses.

He had several charts tracking 20 years of year over year changes in bank and non-bank credit availability.  Two charts grabbed my attention.  One illustrated non-bank home mortgage availability dropped from a $700 billion increase year over year to a $300 billion decrease, a $1 trillion change since the beginning of this year.  Yes, a trillion.  The other chart, clearly showed the recent, significant drop in non-bank consumer credit which together declined a whopping $1.4 trillion year over year.   The decline in these non-bank shadow credit markets was chilling.

Why does your typical small to medium business owner care that home mortgage lending and consumer credit have cratered?  Experts estimate that at least 20% to 30% of small businesses have used to the equity in their home to start up their business, ease a cash flow crunch or grow their business.   Additionally, according to a June 18, 2009 article in the New York Times entitled, “A Credit Squeeze for Small Business Owners,” by Andrew Martin, 59% of small businesses in the US rely on credit cards to finance their day-to-day operations.         

A quick Google search uncovers recent articles touting the benefits of leveraging the equity in your home as a funding source for small and medium sized businesses.  Housing prices were rising and the interest was deductible.  Of course, we are also aware of the low, introductory “teaser” rates formerly offered for credit card balance transfers when opening a new card account.  As illustrated by the charts, both of these financial markets have diminished significantly.   As a result, for most businesses, these funding streams are now dry and businesses are going to have to tap alternative sources of capital such as leveraging their receivables.   If you are a small business owner, the health of your Customer Portfolio (your sales + your ability to convert those sales into cash) is going to, more than ever, play a significant part in the viability of your business.