Neighboring cities Midland and Odessa, Texas are no strangers to oil and gas booms. Drilling booms have come and gone in this area for nearly a century. However, this new unprecedented oilfield boom in the Permian Basin is engulfing the rest of West Texas too, extending to areas that drilling has not touched before. While the communities welcome the jobs and new business, this explosive growth has also created some big challenges.
Fracking, The Driving Force Behind the Drilling Boom
The Permian Basin has been known as “The Big One” ever since 1923, when the legendary oil well Santa Rita No. 1 first struck oil. Geologists have estimated that the more than 400,000 existing wells in the Permian have yielded around 30 million barrels of oil, so far. Even so, the oil industry has been unable to profitably pull much oil from shale for decades, concentrating on other easier-to-tap, rock formations. This is where new technology has changed the game and is now transforming West Texas.
New fracking technology has made it cost-effective for companies to drill in tight shale, opening up huge opportunties. These techniques – which combine horizontal drilling with industrial-scale hydraulic fracturing – were first mastered in lesser shale plays where it is easier to drill, like the Bakken formation and South Texas. Hydraulic fracturing involves shooting water, sand and chemicals deep underground to crack hard rock and release oil.
The Permian, on the other hand, is a more complex area – but one that is also immensely rich in oil. With this mastery of the Permian’s geology, the basin’s production has begun to explode. These improvements in oil extraction methods have allowed drillers to produce more oil than ever before.
The Affects of West Texas Oil Boom on Small Towns
The West Texas towns affected by this explosive growth – Andrews, Big Lake, Crane, Fort Stockton, McCamey, Monahans, Pecos, Orla, Ozona, just to name a few– are now trying to balance the economic advantages of the boom with the dramatic changes it brings to their communities. What were once quiet small towns, have changed almost overnight. Consider Pecos, for example.
Historically a sleepy little town, Pecos has nearly doubled in population and bursts with encampments that house several thousand oilfield workers. Restaurants are selling more food than they have in past years combined, and more and more truck stops are popping up along Pecos’s highway intersections. Restaurants and motels are overflowing.
As these towns suddenly double or triple their population, it has a huge impact on absolutely everything: schools, medical clinics, stores, car sales, streets, housing, etc. Quiet main streets suddenly boast improved schools, libraries and community centers. Tiny rural airports expand to take on corporate jets, and teachers scramble to keep up with the influx of students. Two-lane road U.S. 285 is packed with semis carrying water, oil, pipe, pumps and tanks. At all hours, they turn in and out of gravel paths that access the wells.
Unfortunately, the West Texas oil boom’s infusion of cash does not come without complications.This explosive growth has created funding needs for small and medium-sized businesses in all kinds of industries. As of now, two of the top challenges for business owners are managing the costs of expansion and finding enough workers.
Managing this rapid growth and keeping up with competitors requires cash – quick cash. At the same time, this funding needs to keep these business’ long-term financial health in mind. While no one can predict for certain how long this boom will last, industry experts are pretty confident production will continue at high levels for decades to come.
Oil and gas companies, the firms that serve them, and small-town business owners all require fast cash for growth while at the same time not adding the burden of debt. For this reason, more and more companies are turning to invoice factoring.
How Invoice Factoring Works
What is invoice factoring? Invoice factoring is a financing tool that allows businesses to sell their outstanding invoices at a discount in exchange for quick working capital. Once approved with a reputable invoice factoring company, the business selects the invoices it wishes to factor. The factoring company then advances the working capital needed against the business’ unpaid accounts receivable.
The initial cash the business receives is known as the “advance rate”; this rate typically ranges from 80% to 90%, but will ultimately be determined by industry and the size of the transaction. The customer is then obligated to pay the factoring company according to the terms of the invoice (usually within 30 to 60 days). Once the factoring company has collected payment from the customer, the business then receives the remaining balance of the invoice, minus a small factoring fee.
While access to traditional lending continues to improve, the long wait times for funding, strict requirements and added debt do not make this option ideal. Invoice factoring, on the other hand, is a cash solution that provides financial stability for long-term growth. The factoring company is buying receivables at a discounted rate, so there is no new debt. The business is simply being provided money it has already earned.
Improve Your Company’s Cash Flow with Factoring
For businesses affected by the West Texas oil boom, fast cash and flexibility are critical. Changes happen overnight, and incredible opportunities are around every corner. If there is a gap between when cash comes in and when expenses are due, it will be hard to seize opportunities. Invoice factoring can improve cash flow and provide much-needed flexibility.
Factoring companies can place cash in a business’ bank account in as little as 24 hours. This working capital can then be used to meet payroll, pay taxes, purchase equipment, cover expenses, pay suppliers and keep the business operating smoothly. Instead of turning down an opportunity, the business can secure the quick cash it needs to say “yes” to the new job, purchase supplies and hire more workers. Because the amount available through factoring is only limited by the number of eligible invoices it has to factor, it makes it the ideal solution for a growing company.
Invoice factoring is used by many different business types and industries; small businesses, startups, medium-sized businesses and businesses experiencing rapid growth, to name a few. The oil and gas industry is not the only industry to frequently use invoice factoring to keep up with the explosive growth of the Permian Basin. Construction, transportation, business services, manufactures and distributors are booming as well.
Security Business Capital’s Invoice Factoring Services
Are you seeking funding options to boost your business’ cash flow, so you can take advantage of the opportunities this historic oil boom presents? At Security Business Capital, we understand that timing is everything. Our invoice factoring services will provide the quick source of funding you need to pay bills on time, invest in additional equipment, hire more workers and increase the size of your business.
We have built an experienced and dedicated team of individuals with years of expertise in providing flexible cash flow solutions that help businesses thrive. Oil and gas services, temp staffing, manufacturing/distribution and transportation are just a few of the business types that can use Security Business Capitals’s invoice factoring services to generate cash on hand.
If you are interested in learning more about how our invoice factoring services work and how they can help your business grow, get in touch with us today for a free quote and/or consultation.