Last month, I commented on an article in the Wall Street Journal which stated that small and medium sized businesses (SMBs) were finding it easier to get credit, and pointing to this as a sign of the credit crunch beginning to thaw.

 

(See original post here: http://exchange.ariba.com/community/solutions/finance/blog/2010/08/19/small-business-credit-easier-does-not-equal-easy)

 

This struck me as being wildly optimistic and rosy-pictured given all of the conversations I have had with SMBs where they tell me they are still struggling mightily.  After posting this blog in a couple of my LinkedIn groups and posing the question, "is this really accurate?  Do you find credit easier to come by now?", I got some comments back that underscored my skepticism.  They basically fell along the lines of this example, where an SMB CFO gives his perspective that, "vendor credit is still limited and tightly controlled. If credit is granted, it is for very short terms and only marginal helpful to the A/P process."

 

Indeed, even the Journal's own online poll asking "is credit easier to come by now?" had an overwhelming "No" response, with 85% of the respondent stating that credit is NOT easier to come by (Granted an instant poll is not terribly scientific, but you'd have to have a pretty big margin of error to overcome that result!).

 

Apparently, though the economy appears to be advancing (albeit anemically), the situation regarding short term credit, lines of credit and other credit-based cash flow tools has not changed all that much for the SMB community.  So it is more important than ever for SMB's to gain access to alternative sources of cash flow...sources not dependent on banks, and which for the most part are not even technically credit.

 

For example, while SMB's have cash flow issues in the extreme right now, large corporate America is sitting on over a Trillion (yes, Trillion with a "T") dollars in cash.  Smart corporates are realizing they earn next to nothing on that cash letting it sit in this environment and are putting it to use to bridge the cash flow gap with their suppliers by offering to pay early at a slight discount on the invoice.  If you are an SMB looking for cash flow, this represents a huge pool of on-demand liquidity that has no impact whatsoever on your debt ratios (other than to improve them) as it is simply turning a receivable asset into cash.   Do your customers offer this to you?  If not, ask them why not!  If they are on the Ariba Network, they could easily automate the early payment offer and give you, their supplier, visibility into when invoices are due to be paid and access to early payment on those invoices at the click of a button.

 

Alternatively, if your customer is not interested in this, you have other options such as Ariba Receivables Financing (powered by The Receivables Exchange), which gives you access to a netowrk of capital providers eager to bid against each other in an open auction to purchase your receivables and provide you the cash flow you need. Click here for more info on this option: http://www.ariba.com/programs/tre/

 

Bottom line, traditional credit is still knotted up at he source and SMB's are still hurting as a result.  Hopefully, you are indeed finding credit a bit easier to come by and are the exception to the rule.  But if not, there are alternatives out there...I encourage you to check them out.

 

In my next post, I'll review some of the fundamentals behind this and why it likely won't change for a while.  In the meantime, I'd love to hear from you about your experience in regards to the credit crisis.  How have you found ways to work through it?