Small businesses should prepare for lender retreat, industry insiders say
Leading invoice finance company Viva Capital says a lender refuge could potentially affect millions of small businesses across the country as financial institutions tighten requirements and limit access to finance. The topic is covered in detail in “When Lenders Retreat: Alternative Financing Options in a Recession,” now live on VivaCF.net.
Financial institutions lend less and increase their borrowing needs in a recessionary market or in uncertain economic times, says president and partner of Viva Capital. The same behavior was seen during the height of the pandemic. Approvals have yet to return to pre-COVID levels, according to the latest Small Business Credit Survey, which is already putting small businesses at a disadvantage.
“Lender withdrawals are the industry’s way of protecting itself against bank runs,” DiDonna explains. “The banks must have more money on hand to ensure they can cover all withdrawals.”
Recent runs, like the one that caused the fall of Silicon Valley Bank, highlight a new challenge facing banks: technology. Social media, for example, can exponentially accelerate the spread of information. Along with mobile banking, which makes it easy to initiate a withdrawal in seconds, financial institutions face an unprecedented risk of bank runs, reports CNBC.
“Small businesses are hit harder during periods of lender withdrawal because their credit, revenue, cash flow and other factors that banks assess are not as strong as those of larger companies, so they miss out on the few remaining loan opportunities,” DiDonna continues. “That means even if a small business is growing and healthy but needs money for wages or equipment to bridge the gap, it’s still more likely to be denied funding.”
DiDonna says alternative lending remains a viable option for small businesses in most of these cases because the qualifications are generally less rigid. Invoice factoring, for example, fits into this category and most businesses with B2B invoices will qualify. He points out that businesses should always be prepared with a backup funding source, but that knowing what alternative funding solutions are available and available before they are needed can determine whether the business will make it through an economic downturn or close its doors.
Those interested in learning more about invoice factoring and alternative financing options are encouraged to request a free quote at VivaCF.net.
