*According to Williams, thinking “small” may pay off big in the long run. “This economy is going to turn around when small business turns it around,” he said.

Even in a city that has the 3^rd most Fortune 500 businesses in the U.S.,  Mr. Williams points to the role of small business growth in growing the economy overall and highlights the current financing obstacles small businesses face.

With bank lending slowing, small businesses must be open to alternative ways of expanding their working capital.  FTRANS helps small businesses get the funding they need to begin growing again.

Excerpt from the full article:

As business and political leaders met in Washington to discuss job growth, Metro Atlanta Chamber President Sam Williams offered his own thoughts: “The private sector creates jobs. The government cannot create sustainable jobs over the long period. I think the biggest part of our economy that needs help is small business owners.”

According to the Small Business Administration, small businesses account for 99.7 percent of employers. They employ more than half of private sector employees and they account for 44 percent of the total U.S. private payroll.

In a conversation with reporters Thursday, Williams said the scarcity of credit is holding small businesses back. “Availability of loans and financing from the financial industry. They’re being pushed down a lot by the regulatory environment that’s coming out now and the whole aftermath of the financial crisis,” he said…

He had several charts tracking 20 years of year over year changes in bank and non-bank credit availability.  Two charts grabbed my attention.  One illustrated non-bank home mortgage availability dropped from a $700 billion increase year over year to a $300 billion decrease, a $1 trillion change since the beginning of this year.  Yes, a trillion.  The other chart, clearly showed the recent, significant drop in non-bank consumer credit which together declined a whopping $1.4 trillion year over year.   The decline in these non-bank shadow credit markets was chilling.

Why does your typical small to medium business owner care that home mortgage lending and consumer credit have cratered?  Experts estimate that at least 20% to 30% of small businesses have used to the equity in their home to start up their business, ease a cash flow crunch or grow their business.   Additionally, according to a June 18, 2009 article in the New York Times entitled, “A Credit Squeeze for Small Business Owners,” by Andrew Martin, 59% of small businesses in the US rely on credit cards to finance their day-to-day operations.         

A quick Google search uncovers recent articles touting the benefits of leveraging the equity in your home as a funding source for small and medium sized businesses.  Housing prices were rising and the interest was deductible.  Of course, we are also aware of the low, introductory “teaser” rates formerly offered for credit card balance transfers when opening a new card account.  As illustrated by the charts, both of these financial markets have diminished significantly.   As a result, for most businesses, these funding streams are now dry and businesses are going to have to tap alternative sources of capital such as leveraging their receivables.   If you are a small business owner, the health of your Customer Portfolio (your sales + your ability to convert those sales into cash) is going to, more than ever, play a significant part in the viability of your business.

Fast food restaurants have lured in customers by offering major deals, but even some fast food restaurants are feeling the pinch.  “High food costs and selling of food at a dollar doesn’t help your margins,” said Larry Miller, a restaurant industry analyst with RBC Capital Markets.

The economy is holding up as such that people are continuing to eat, but perhaps they just aren’t eating as well as they used to.  To read the whole article, click here.

This is not the usual bankruptcy that one might have predicted from a decline in the financial condition of the company.  This bankruptcy was reportedly caused by the  company’s lax enforcement of sanitation practices that resulted in salmonella contanimation, something not visible even if one used a microscope on the financial statements. 

Whether financial or bacterial in cause, the result is the same — the unsecured creditors who provided much of the capital for this company are simply out of luck.  

What can a company do to protect itself from this risk of customer failure?  Traditionally, there were three solutions:

1. Require payment in advance or on a credit card, which the CFO likes but the sales team hates;
2. Do a really good job of credit decisioning on each potential customer, which is time conuming, requires skills most companies do not have, and will not spot all problems; or
3. Buy credit insurance.

The third option, buy credit insurance, is a good option for large companies, but not really an option that is availabile for most smaller companies.  And, today, most of the credit insurance carriers are not writing coverage for new clients.

A fourth alternative is now available:  Trade Credit Express from FTRANS, which enables a B2B seller to outsource much of the credit administraiton and payment risk of operating an in-house credit system, and be paid for invoices in 5 days rather than 50.

The need to protect your company from the financial failure of your customers has never been greater.  And, the economy will probably get worse, but more on that later.  Meanwhile, I continue to look at the jars of peanut butter on the store shelves and wonder if they are safe to eat.  And, I continue to be proud of the the fact that if an FTRANS client had sold to Peanut Corp., their loss would be minimal.