Current trends in working capital management
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I would add that, while there have been recent signs of improvement in the U.S. economy, we’re by no means out of the woods yet. While positive, economic growth remains anemic, especially compared to most other post-recession rebounds. And unemployment remains stubbornly high, despite some recent improvements in the employment picture.
Finally, while the Small Business Lending Index points to positive signs for business lending, more FDIC data paints a different long-term picture: The overall volume of small business loans (defined as loans of $1 million or less) has been shrinking since 2008 and was down 15 percent from its peak as of September 30, 2011. There were just 1.5 million small business loans outstanding at this time, the smallest number since 1999, according to the FDIC.
Now, contrast these figures with the latest Asset-Based Lending Index, which is published quarterly by the Commercial Finance Association. There was a 1.5% increase in total committed credit lines in the third quarter of 2011 from the previous quarter, which was the fourth consecutive quarterly increase in asset-based credit lines.
Total asset-based credit commitments grew by 5 percent compared to the third quarter of 2010, and new commitments were up by more than 26 percent. Half of asset-based lenders reported an increase in new credit commitments and 70 percent reported an increase in total commitments, while utilization of asset-based lenders’ credit lines increased for the third consecutive quarter, to 40.5 percent.
Uncertainty … and Opportunity
The presidential election this November will probably add to, rather than subtract from, the uncertainty that has plagued the economy since the financial crisis began more than three years ago. Given this, CFOs would be wise not to get too complacent about working capital management.
Meanwhile, this uncertainty could mean opportunity for asset-based lenders in 2012. If the economy continues to pick up steam, small business credit demand will certainly rise. But many small businesses still won’t qualify for bank financing, making them good candidates for non-traditional and asset-based loans.
This makes now a good time to start cultivating relationships with local bankers, who can be important referral sources for small businesses that could potentially benefit from factoring and other asset-based loans. Doing so could be one of the most important strategic moves you make in 2012.
Tracy Eden is the national marketing director for Commercial Finance Group (CFG), which has offices throughout the U.S. and Canada. CFG provides creative financing solutions to small and medium-sized businesses that may not qualify for traditional financing. Visit www.cfgroup.net or contact Tracy at tdeden@cfgroup.net.
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