Small Business Owners Seek Flexible Funding Options Beyond PPP Loans

Accounts Receivable Financing

When the Paycheck Protection Program (PPP) was announced, small business owners scrambled to research it and find out if the funds could help them navigate the impacts of the COVID-19 pandemic. Many have had to implement remote work strategies, invest in technology and equipment to support remote working teams, offer new services like curbside pickup and delivery, open up virtual payment options and close their doors temporarily or reduce operating hours. The disruption to businesses has been profound.

The intent of the initial funding allocated to the PPP loans through the CARES Act was to provide relief to U.S. small businesses. pHowever, the $349 billion of the first round of funding was depleted in less than two weeks after the program's launch on April 3. With so many small businesses still in need of funding to weather the economic downturn, Congress replenished the program by authorizing a second round of funding of $310 billion.

Small Business Owners Receive Uneven Relief

According to the National Federation of Independent Business, 74 percent of small business owners had applied for loans, but only 20 percent had received money from their lenders as of April 17. There are still countless small businesses across the country that have yet to receive funding. The overwhelming number of applications, continually shifting guidance, changing forms and technical difficulties all created considerable delays. The issue of banks only opening up the process to their existing customers also slowed down the process and prevented many small business owners from receiving much needed capital.

Meanwhile, those that did receive a PPP loan have nearly depleted their funding as the current crisis drags on and/or they did not receive adequate funds in the first place; the average loan size at the end of the first round of PPP funding was $206,000, which then dropped to around $115,000. Some of the smallest businesses in genuine need (e.g. independent contractors and freelancers) were prevented from opting into the program until a later date – just as it was announced the program had run out of money.

There was also the issue of small businesses being told how to use the funds. The original terms of the program required that 75 percent of the funds be used for payroll costs. In addition, business owners were given just 8 weeks to use the funds and still qualify for loan forgiveness. In an effort to address the concern of thousands of small businesses that this rigid structure did not meet their needs, the Paycheck Protection Program Flexibility Act (PPPFA) was signed into law on June 5, 2020.

Business owners were given a longer time frame of 24 weeks to spend PPP funds. The cutoff is now either December 31, 2020 or 24 weeks from the receipt of the loan. The requirement to spend 75 percent of their loan on payroll in order to be fully forgiven has also been reduced to 60 percent; this allows businesses the ability to spend more money on other operational needs, like rent and utilities. The requirement of rehiring laid off employees by June 30, 2020 in order to qualify for full loan forgiveness was also pushed to December 31, 2020, providing more flexibility.

Small Businesses Still in Need of Funding - And Flexibility

As of June 12, the program still had roughly $130 billion available for small businesses – but the deadline for applying has come and gone (June 30). Meanwhile, the businesses that did receive a PPP loan say the funds did not give them the flexibility they really needed. Small business owners are still in need of capital to manage cash flow, pivot business practices, stay in front of their customers and protect their business and team.

The solution? Many business owners are starting to look elsewhere for more flexible cash flow solutions, like invoice factoring. Invoice factoring, also known as accounts receivable factoring, allows your business to partner with a factoring company to sell outstanding receivables and generate immediate capital. Rather than waiting for 30, 60, or even 90 days to receive payment, your business can receive up to 95 percent of an invoice’s value in as little as 24 hours.

What are the top benefits of utilizing invoice factoring:

Greater Financial Flexibility

The amount available through factoring is only limited by the amount of eligible invoices you have to factor, providing unlimited funding potential. As your business grows, your business’ credit line also increases.

Fast Funding

Thanks to a quick, painless application process, factoring companies can place cash in your business’ bank account in as little as 24 hours.

No Added Debt

Invoice factoring is not a loan. Because your business is given an advance of money it has already earned and is simply waiting to be paid, factoring does not add any debt.

Constant Financial support

Reputable factoring companies also offer support with key back-office tasks like collecting payment and maintaining records, lessening the burden of dealing with accounts receivable and freeing up valuable time and resources.

Security Business Capital’s Invoice Factoring Services

Could your business benefit from the extra cash invoice factoring provides to increase cash flow and easily cover payroll? Invoice factoring can give you the confidence that you can meet payroll and other expenses each week, while also ensuring you have enough cash on hand to continue your operations and handle any crisis period. Security Business Capital has built a dedicated team of individuals with years of experience in providing flexible cash flow solutions that help businesses thrive. Our invoice factoring services can boost your business’ cash flow, enabling you to effortlessly cover daily costs and maintain a strong foundation on which to grow.

If you would like to learn more about how our invoice factoring or purchase order funding services can help your small business, get in touch with us today for a free quote and/or consultation.