Scott Shane. the A. Malachi Mixon III Professor of Entrepreneurial Studies at Case Western Reserve University, recently shared the law of unintended consequences and its relationship to the drop in small business lending in an article that appeared in Crain’s Cleveland Business, entitled: Use of Personal Credit Cards May Explain Drop in Small Business Lending. Here’s our video blog discussion:

Basically, Professor Shane thinks the decline in small business loans may not really be a decline so much as a shift in where small business owners are now obtaining credit. In addition to banks tightening their lending restrictions and the weak real estate market, Shane thinks the CARD Act, which went into effect in February 2010, has something to do with the drop in small business loans.

In a nutshell, the CARD Act protects consumers from having to deal with unwarranted interest rate hikes, while also reducing credit card fees.

To further prove his theory, Shane points to a National Federation of Independent Business, who reported that “the fraction of small business owners who use personal credit cards for business increased from 42 percent in 2009  to 49 percent in 2011, while the fraction who use business credit cards declined from 64 percent to 59 percent.”

Question to Our Small Business Owner Readership:

Do you use personal credit cards to help fund your business?

We at The Factoring Blog feel that the following issue is of some significance for prospective small business factoring clientele, or for any business owner in need of funding.

A debate earlier this year on The Wall Street Journal’s website explores at length the importance and influence of informal, affluent investors. Angel investors may be without institution, but they are not without tremendous significance in the world of financing start-ups and small businesses.

This has led some legislators to question whether angel investors ought to be given tax credits for their services to small businesses. After all, they, more than many other financiers, have to expect long delays in acquiring returns on the start-ups they decide to fund.

The generosity behind enduring these delays not only reveals the source of their namesake; it also makes becoming an angel investor an understandably unappealing undertaking. This fact, however, does not stem the need for their services.

The Journal does a nice job of prefacing the debate by offering opposing perspectives on the effectiveness of tax breaks for angel investors.

Proponents of the idea say it could work on two fronts: First, it would generally encourage angels to invest in start-ups. Second, the measure would provide them with more working capital, so they can better serve their communities.

On the other hand, critics worry about the potential for tangible, concrete results that can be quantified in terms of real “evidence that credits increase investment levels or create jobs.”

In the meantime, don’t wait around for angels to swoop down with pots of gold to help your business grow. Factor your receivables and claim the gold you’ve already earned. A small business factor will make no attempt to claim neither debt nor ownership from your company. Your debt to the factor is hoisted on your customers, and the only ownership your factor will claim is over individual invoices bought for cash.

Sound angelic? Then try factoring today.

Taking power from the hands of big banks may necessitate the empowerment of small businesses and banks. Though it does not seem that a big bank breakup is likely to take place within the near future, the invoice factoring professionals at The Factoring Blog felt it would be important for small business factoring clientele and prospective factoring clients to know the state of big banks and their futures…

What would happen if Henry Ford came back to life and decided to tell all of us to dismantle our automobiles because the whole idea was a huge mistake? It would seem that, no matter what his intentions, the term world-class hypocrite might suffice to describe a man in a similar course of action.

Consider the example of Sanford Weill: Recently, the former longtime Chairman and CEO of Citibank decried the ethical foundations behind the financial institution that had been his life’s work. Weill had managed to convince Congress in 1998 to end a sixty-year ban on the legality of commercial banks’ ability to take part in investment banking. Weill, who capitalized on this change with Citi, declared on Wednesday that America’s banking behemoths ought to dissolve for the safety and security of the American taxpayer.

“I am suggesting that they be broken up so that the taxpayer will never be at risk, the depositors won’t be at risk… Mistakes were made.”

Weill’s mistakes may in fact be at the root of the global financial crisis. Since massive banks with massive sums of money are able to wield their cash so openly with minimal liability, the results have been catastrophic for taxpayers and small business owners everywhere.

According to Big Bank Pioneer Seeks Breakup, (an article in The Wall Street Journal), “Weill had spent years working for the repeal of federal laws that prevented banks from branching into investment banking and stockbrokerage.” When Weill lobbied heavily for the repeal of the Glass-Steagall Act, so much so that he even called President Bill Clinton one night, late in the evening.

The bill that repealed the Glass-Steagall Act came to be known as the “Citigroup Authorization Act,” and Mr. Weill continues to defend the repeal. ‘”I think the earlier model was right for that time,” he said. “I think the world changed with the collapse of the real-estate market and the housing bubble and what that did because of leverage in certain institutions. So I don’t think it’s right anymore.”

Small business factoring clients may be interested in a controversial new style of financing and consulting that the invoice factoring experts at The Factoring Blog recently came across in The Wall Street Journal: Start-Ups Crowd ‘Accelerators’.

Small start-ups in particular have been applying in droves for “seed capital and advice” from brand-new business “accelerators”.

There are more than 200 of these 12-week “boot camp” programs available worldwide. They each offer their own degrees of “funding and one-on-one mentoring to help develop their businesses.” In return, the accelerators receive 6% stakes in start-ups they take as clients.

The model has its critics. Without question, credibility is a key factor in determining an accelerator’s effectiveness, and given the novelty of these programs, that quality may be hard to come by.

According to this article in The Wall Street Journal, many question “whether some of the programs… have enough access to the right mentors and investors to boost an entrepreneur’s chances of success.”

Often, accelerators’ services can lead business owners toward “false hope,” instilling quixotic optimism, rather than encouraging bold realism. It is often outside of their incentive to prime businesses for success. Businesses at risk become a mere liability on an accelerator’s spreadsheet.

According to the Journal, “If an accelerator gives $25,000 in capital to participants, takes a 5% equity stake, and graduates 40 companies in a year, he says, it can break even if just one gets acquired for $20 million.

Factoring asks for no share in your business’ equity and makes no effort to leech on your success. Small business factoring offers no false promises; it simply offers fast access to the money you and your associates have already earned. Credit is not taken into account, nor is the very structure of business model. Your business is yours to run, and accounts receivable factoring can fit seamlessly into your daily operations.

Our small business factoring readership may have generally come to consider most developments in twentieth century microfinance as taking place in the field of wide-reaching global funding. Fortunately for struggling business owners in Cleveland’s minority communities, innovation in local, small business microfinance is enjoying an unprecedented resurgence.

This development comes according to Robert L. Smith of The Plain Dealer, Cleveland, OH. His article’s title claims that “With Microloans, Cleveland Hopes to Jumpstart Businesses in Minority Communities.” Smith attributes the lack of small businesses in minority communities to a shortage of capital, rather than a “lack of ambition and ideas.”

Furthermore, the Economic and Community Development Institute, “a 501(c)3 non-profit economic development organization located in Columbus, Ohio” plans to open an office in Cleveland in order to “invest in people to create measurable and enduring social and economic change.”

This mission statement, from ECDI’s website, is the ideological cement by which Cleveland will be revitalized and rebuilt.

“The aim is to launch more businesses in neighborhoods that need them and to expand opportunities for low-income entrepreneurs,” says Smith.

According to analysts from Friedman Associates, an Iowa-based economic development company, loans to Cleveland businesses dropped sharply from 2007 to 2009. Their study apparently “revealed an unmet need for about $38 million in loans under $50,000.”

Organizations like ECDI, Friedman Associates and the Cleveland Foundation are doing everything in their power to jumpstart business practice around the world, but-for any community-good business practices begin locally.

Good news for small business factoring customers in every industry: Just this May, small business lending rose to its highest level of the year so far, likely indicating a wave of economic growth in the coming year.
Thomson Reuters, in conjunction with PayNet, put out their Small Business Lending Index. Their measurement is critical for several reasons:

1. It rose significantly to 108.4 from April’s 96.6, a sudden gain that reversed a steady decline from the previous four months.
2. Part of the spike in the Small Business Lending Index was the result of an 18 percent jump in small business lending from May of 2011.
3. Finally, the small business borrowing index has long been an indicator of economic growth.

U.S. Federal Reserve officials have already slashed the costs of lending as a result of this increase. According to Reuters, these rates will stay right around zero until 2014 at the very least. What remains to be seen is whether or not more stimulus capital will be needed to sustain the growth that small business lending has enjoyed as of late.

Our factoring blog  readers should take note of PayNet’s findings, especially in their measurements of the recent decline in delinquent accounts receivable:

• The percentage of accounts receivable that were delinquent in payment by 30 days or more fell from 1.28% in April to 1.18% the following month.
• Accounts delinquent by 90 days or more fell from .34% to 0.29%.
• Accounts that were overdue by 180 days or more decreased from 0.44% to .40%.

This is all good news for all business owners, as they will be likelier to receive cash from customers at a faster rate than in previous months.