Small Business Lending Increasing - And An Interesting Caveat.

It seems that today is the day for good news. In my other blog, I posted about the increase in construction activity and how manufacturing is in positive territory. Now, for more good news, small business lending is up. You can read about it here.

The interesting caveat, about half the companies looking for business financing went with smaller or mid sized banks (instead of a big bank). We have actually seen this happen in our business as well. About six months ago we noted that we were loosing some invoice factoring and purchase order financing prospects to banks. But not to large banks.  With few exceptions, we lost it to small or medium sized mid west banks which seemed to have escaped the real estate mistakes of their bigger rivals.

An increase in conventional lending is good for the economy as a whole. In my view, purchase order financing has it's place in the business funding ecosystem. It's a solution that is used by small and mid sized companies that have a large order that can't be financed through conventional means - usually because the company has limited credit history or limited experience. In other words, it's more expensive than conventional funding. However, during the credit crunch, banks started turning companies away simple because they had no money to lend. This forced companies with good credit profiles to seek alternative funding as a last resort. Since products like factoring and purchase order financing are more expensive than conventional loans, companies saw their funding costs increase.

It seems that slowly (but surely?) we are heading towards a normal environment, where companies with solid credit profiles will be able to secure conventional bank financing at appropriate rates. I sure hope this happens  fast - the economy needs it!