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Innovation for Small Businesses During Tough Times

By Kristin Gabriel

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Published: 02Jun2009
Word count: 569
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During this difficult economy, small businesses need a lot of innovation in order to succeed. The Small Business Association (SBA) has done quite a bit of research on the subject, and also offers its members a number of innovative programs.

Economic stress typically leads to a wave of small business innovations. Why? Because there is a need to improve productivity, and in most cases this means increasing what the customer perceives as value-added.

The Office of Technology administers the Small Business Innovation Research (SBIR), and the Small Business Technology Transfer (STTR) Programs, which are two competitive programs that are sponsored by the government. STTR program awards $2 billion to small high-tech businesses that compete for the funds.

Basically, the SBA offers programs for small business including banking, crisis relief, goaling, investment, lender oversight,freedom of information, technology, and more.

One of the SBA's goals is to ensure that our country's small, high-tech, innovative businesses are a significant part of the federal government's research and development efforts. There are eleven federal departments participating in the SBIR program.

In addition to just plain survival, small businesses must focus on cash flow, costs and the customer. During times like this, small businesses re-evaluate their priorities, and their business models, trying to pinpoint problems and goals so that they can revise products and service offerings.

Businesses need to keep some cash on hand during tough times while researching and redesigning in-house programs, products and service offerings. That's why so many small businesses have discovered the concept of accounts receivable factoring, also knows as invoice factoring. Standard accounts receivable factoring has been around for more than 4,000 years. This one financial strategy alone can actually help a small business entrepreneur grow their business exponentially during difficult economic times, while their competitors struggle.

Because obtaining loans from banks and other traditional financial institutions can be a long, painful, and often frustrating process, business owners and managers need to understand factoring - a highly effective alternative to traditional financing.

Here's how factoring works.Factoring is different from a bank loan in several ways. Bank loans involve two parties, while factoring involves three parties. Banks base their decisions on a company's credit worthiness, whereas factoring is based on the value of the receivables. Factoring is not a loan - it is the purchase of a financial asset, or the receivable.

A factor will usually look at the creditworthiness of your customers and pays within as little as 24 hours. Most do not expect to buy 100 percent of a company's receivables, and there are no minimum or maximum sales volume requirements. Most factors' professional rates are competitive because each client's circumstances vary, which may have an impact on the fees charged. You can choose which invoices you prefer to be factored. Factoring enables you to retain most of your money, while spending the minimum fees to guarantee adequate cash flow for your business.

The due diligence typically takes one to two business days. Once completed the client is at liberty to offer invoices to the factor for purchase. Upon receipt of invoices, the factor checks the credit of the debtor named on the invoice and makes sure that the sale represented has been satisfactorily completed. Once this is done the debtor is advised of the purchase by the factor and the client receives their funding. At the end of the credit period, the debtor pays the factor directly completing the transaction.

Kristin Gabriel is a writer who works with The Interface Financial Group (IFG), North America's largest alternative funding source for small business. The company provides short-term financial services such as invoice factoring to clients in more than 30 industries. IFG offers expertise in accounting, finance, law, marketing and banking. Ho to www.ifgnetwork.com to learn more about factoring.

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