The JOBS Act, Small Business and Commercial Factoring

Recently, the House passed the Jumpstart Our Business Startups (JOBS) Act. This is a package of six bills to create more access to capital for entrepreneurs and small business owners. But will this act greatly impact most small businesses? Parts of it will benefit small business owners, but it might not solve all of the issues they face.

The act has a few different sections that legislates various small business concern. Title II, for example, removes regulation prohibiting small businesses that are offering securities from using advertisements to solicit investors. Because “advertisements” previously had a broad definition, this is a good step considering how information and advertisements are exchanged now – over social networks.

Title III allows entrepreneurs to raise equity from groups of non-accredited investors, known as “crowd funding”, while Title VI increases the number of shareholders that can invest in a community bank without having to comply with extra regulation. With more capital available for community banks, there may be some trickle down to the small business economy.

Other sections deal with reclassifying companies and their shareholders, like Title I, which creates a new class of companies with revenue under $1 billion as “emerging growth companies”, or Title V, which increases the number of shareholders a company can have to 1,000 before being forced to register as a public company.

Overall, these are positive steps intended to increase access to capital and decrease regulations. But the JOBS Act ignores the reality of most small business in America – their size and revenue simply aren’t large enough for this act to have much impact. Many small businesses struggle with cash flow issues month to month, and larger legislation won’t help them. One simple solution to cash flow issues that businesses can employ right away is commercial factoring.

Commercial factoring is a practice wherein a business sells its accounts receivable invoices to a third party at a discount in exchange for immediate cash. It is a method used by businesses to cover financial needs during periods when cash on hand isn’t enough to meet your needs. It’s not the business’ credit that’s up for inspection but rather the debtor’s (i.e., the party named on the invoice) and there’s nothing to repay – commercial factoring isn’t a bank loan. Loans are based on your assets and the ability to pay it back. But when you factor, the funds available are based on your credit-worthy customers and are virtually unlimited. The more invoices you have, the higher your credit line is.

While the Obama administration is making good strides to streamline laws that govern small business finance, sometimes immediate cash needs determine whether a business will succeed or fail. Invoice factoring can be the in between measure to satisfy those needs.

This entry was posted in News and tagged , , , , . Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *