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As reported by the Wall Street Journal, small and medium size businesses continue to have limited access to credit. According to Federal Reserve Chairman, Ben Bernanke,
“The formation and growth of small businesses depends critically on access to credit,” Mr. Bernanke said in the text of his remarks. “Unfortunately, those businesses report that credit conditions remain very difficult.”
Absent credit availability in the form of small business lending, businesses must actively manage their cash conversion cycle, which is the time it takes to convert a business’s cash consuming activities into cash payments. In other words, businesses must manage to a low cash conversion cycle which means having cash tied up in business operations for as few days as possible. Clearly, a shallow credit market highlights the importance of managing to a low cash conversion cycle as this may be one of the few ways for businesses to have the liquidity necessary to fund their operations.
How do you manage your cash conversion cycle? Focusing on revenues and expenses is important. However, equally important, and perhaps more complex is developing a better understanding of your business’s working capital situation. Analyze your accounts receivable and accounts payable outstanding days, including inventory, to understand how movements in each affect your cash conversion cycle. Good cash cycle conversion management equates to better revenue cycle management which equates to an increase in the health of a company. For more information on cash cycle conversion, click here. Additionally, consider solutions from companies such as Ftrans which provide full accounts receivable management solutions.
It’s not that banks don’t want to see a small business recovery. In fact, they are indeed under political pressure to lend to SMBs and help build the recovery.
Yet, Our research indicates that the community banks that typically serve SMBs just aren’t structured to handle the the highly specialized risk assessments required to successfully underwrite C&I loans. Nor are they staffed right now to properly manage the rigorous monitoring of these loans.
Dan Drechsel, Ftrans CEO, explains further.
Next: Banks say they aren’t lending because there is no demand. Do you believe that?
The WSJ reports on this question almost daily now: When will banks start lending to small businesses again? Greenwich Associates partnered with Ftrans, surveying a host of community banks, to gain insight into the issue. Dan Drechsel talks about the results of that study and his perspective on the outlook for bank lending to SMBs over the next 18 months.
Next up: Will banks help SMBs recover? Is there actually a demand from SMBs for financing?
