Since the financial crash, small loans have represented a decreasing percentage of banks’ overall business. Banks are hesitant to work with small businesses, and—naturally—small businesses are hesitant to borrow from the very same lenders who many believe caused the crash in the first place. Trying to improve the state of affairs, banks have now begun a method of financing small businesses called supply-chain financing. On the surface, this may seem like a positive development for small businesses, but optimism simply isn’t borne out by the facts.
Banks Trying to Support Small Business
In supply-chain financing, a bank purchases the receivables from a company’s smaller supplier and pays them early, giving the company more working capital and flexibility. A company receiving supply-chain financing may receive funds in one month that they need to pay their bills in sixty days’ time, for example.
Problems with Supply-Chain Financing from Major Lenders
In the wake of the financial crash, increasing government oversight, the passage of Dodd-Frank, and the creation of the Consumer Financial Protection Bureau, small businesses have found financing options from major banks and credit unions all but dried up. Those who do manage to qualify for financing have found their service clunky, slow, and inefficient. The problem with supply-chain financing from large banks and credit unions is simple: they’re not truly designed to meet the needs of small businesses. Banks charge interest for the service, usually basing it on the borrowers’ credit, not the credit of their suppliers. As a result, Wells Fargo, Citigroup, and J.P. Morgan Chase & Co. have primarily extended supply-chain financing to large companies—the very same companies that have made it difficult for small businesses and minority contractors to compete. Another problem with supply-chain financing from major lenders is that, because they offer government-secured financing, the paperwork and credit checks needed to qualify often take far too long.
Capstone’s Diverse Financing Options
Small businesses who borrow from traditional lenders take on significant credit risk. Capstone provides personalized service and tailored business funding solutions to meet our clients’ needs. We recognize that many minority contractors, small manufacturers, and small businesses don’t have excellent credit, despite the fact that they have huge opportunities for growth. Our diverse small business funding strategies base creditworthiness on the credit of our clients’ customers, not our clients themselves. This allows us to provide our clients with far more financing than if we lent to them directly.