Due to recent economic downturns, many small businesses are finding it more difficult to obtain funding from traditional lending sources. Tight credit conditions and limited profit margins can leave many smaller enterprises with serious cash flow management difficulties. In the manufacturing field, these financial problems can cause interruptions in workflows and bring normal operations to a standstill. Limited cash reserves can also reduce the ability of these companies to optimize their supply chains, upgrade to improved equipment and promote their products to consumers and business clients. Reduced access to traditional credit arrangements can have a crippling effect on smaller manufacturing firms in the competitive marketplace.
In an article published in 2010, the Wall Street Journal discussed the effects of tight credit conditions on the small business community. The article, entitled “Asset-Based Lending Grows in Popularity,” discussed the role of alternative lenders in filling the gap left by the reduced availability of traditional credit for small businesses, manufacturers and organizations in the modern financial environment. These options are especially useful for manufacturing firms that require rapid access to cash to manage ongoing expenses or to take advantage of limited-time opportunities in the supply and distribution marketplaces.
Many smaller manufacturers find it difficult to compete with the deep pockets and promotional tactics used by larger competitors. Asset-based lending arrangements allow these smaller companies to put the value of their outstanding invoices, pending purchase orders and other assets to work to level the playing field and build a larger customer base. Companies that offer invoice lending arrangements use the value of the collateralized accounts receivable and the credit ratings of the companies who owe those accounts receivable amounts to make a determination regarding approval of asset-based loans. This contrasts with the usual evaluation process employed by traditional lenders, which can take months to complete and can require extensive paperwork and documentation from business loan applicants.
Asset-based loans are an especially good choice for small manufacturing businesses because they can provide cash on hand in a matter of days. This can allow an added degree of flexibility in managing overhead expenses, meeting payrolls and acquiring raw materials for ongoing production needs. Companies like Commerce Commercial Credit offer fast decisions and typically fund loans within one workweek of approval.
By taking advantage of asset-based loans and lines of credit to manage short-term cash flow needs, small manufacturers can remain competitive in the global marketplace and can enjoy added profitability and improved positioning in their field of industry.