This reminds me of our work here at The Receivables Exchange (TRE). Except that, in our case, we have anticipated the need - what a rare event in business these days. We've rethought working capital in hopes that we could help small and mid-sized businesses rethink how to manage their cash flow. I'm sure our Founders would love to claim that they had the foresight of the credit crisis more than two years ago when they founded this company. Truth is - they simply thought that there was a better way for companies to fund operations and capitalize on growth opportunities. Nic, Co-Founder & President, knew that the majority of a company's cash flow is tied up in outstanding invoices and that there had to be a more efficient way to access working capital. Justin, Co-Founder & CEO, from his days at Lava Trading, knew that a transparent marketplace for receivables finance would create the medium to make it a mainstream tool available for the small and mid-sized businesses that don't have the advantages of the "big guys" when it comes to accessing affordable working capital - or these days any capital.JFK once said, "...in a crisis, beware of the danger - but recognize opportunity". While we know this to be true, we also know that this is not a sprint. Helping risk-averse finance executives to try something new and innovative with their financial management is not easy. Still, we think it is well worth the effort. We hear it every day from the very businesses we're helping to take control of their working capital and gain access to liquidity.

In fact, a recurring theme from our Sellers, small and mid-sized businesses, is that they feel when it¹s all said and done ­ the downturn, that is ­ that the credit crisis - might actually have provided them with a competitive edge that they wouldn¹t have gained otherwise. Many Sellers on the Exchange have learned that they can thrive and increase their cash flow by selling their receivables - the very asset that is causing them strain - without the added debt of a line of credit or other more traditional forms of financing. And, we hope to continue to help many more.

When the credit crisis began, many, including myself, referred to the "credit shock" and its ripple effect that rattled around our broader economy; instead of the real shock to the system- the complete collapse of trust. This, in turn, broke the unwritten bond between financial institutions and small and mid-sized businesses that simply stated, "if I work hard and do well by building a good company, then you will be there for me when I need to grow or for unexpected bumps in my business cycle". Instead, healthy and struggling companies alike had their lines reduced, entirely eliminated, or readjusted with prohibitive covenants. For the last nine months, it's been every person for themselves, with nothing more than a "good luck, see you on the other side and let's do business then".

Unfortunately, it's not going to work that way. We have spent the last 200 plus years building and testing business trust. That's the bad news. The good news is that Americans, as always, are resilient and creative problem solvers.

We view The Receivables Exchange as an opportunity to establish trust through mechanisms like transparency and standardization. Trust will eventually return to American business, and with it prosperity. But this one, we are going to have to earn.

Nic Perkin is Co-founder and President of The Receivables Exchange, an accounts receivable financing tool. The Exchange is the world's first online marketplace for real-time trading of accounts receivable. Find out how to trade accounts receivable.

Outside of the GM spin, the underlying theme of the commercial holds a great deal of relevance to the business climate we now find ourselves in. While unemployment will continue to climb, the rate of change in job losses has slowed, which suggests stabilization has reached the workforce level. Stock market volatility has ebbed, and the market has reclaimed the ground lost since the beginning of the year. Credit spreads have contracted back to the pre-Lehman bankruptcy level, which signifies that some measure of confidence has been restored. I would not go so far as to label these ‘green shoots,' but it does represent stability.

For businesses, achieving some measure of stability offers breathing room to conduct more extensive planning and gain confidence in forward estimates. There will still need to be a fair amount of cost right-sizing once companies fully adapt to a consistently lower, albeit stable level of demand. The GM ad touches on several of these themes, as they will have to rationalize some parts of their business during restructuring. Part of the rationalization process will be coping with the new environment for credit. This does not apply to GM right now as taxpayers are financing them. For regular companies this will be an ongoing issue. While credit spreads have tightened, we have still not seen an uptick in new commercial & industrial loan origination. Moreover, we are now seeing the potential for renewed inflationary pressure from oil, along with rhetoric from the BRIC countries on switching to a new reserve currency. This has started to affect long-term interest rates and the demand for U.S. dollars. This may raise the absolute cost of credit as interest rates continue to drift up in the back half of 2009.

When I look back a few months and remember the manner with which a number of our Sellers approached using The Receivables Exchange, a large proportion of them expressed that their involvement would be short and fleeting. Two things have happened since then. First, the economy has stabilized on a lower demand peg, with a correspondingly weak lending environment. Second, TRE has become significantly more robust and liquid. The combination has led to a shift in how current Sellers and newly on-boarded companies view TRE. As companies use TRE more regularly, they begin to view the cost of selling receivables as an intrinsic cost associated with doing business on terms, not a cost of financing their entire business. Companies typically have one or two customers that cause the majority of their angst as it relates to stretched DSOs. When they monetize those receivables, realize the benefit to cash flow, and then amortize the cost back into their total cost-of-goods-sold, they realize the cost is not as dramatic as they once thought. Our Sellers are seeing that the incremental liquidity gained, far outweighs the cost in the long run. This is one type of business rationalization so poignantly highlighted in the GM ad that a large portion of small businesses will go through in the coming months.

Bill Siegel, CFA, is Vice President, Head of Liquidity Desk at The Receivables Exchange, an accounts receivable financing tool. The Exchange is the the world's first online marketplace for real-time trading of accounts receivable. Find out how to trade accounts receivable.  

Take the price of oil for example. Most rejoiced when oil dropped to $35 per barrel. Personally, I also enjoyed the experience. But in defiance of the principles of equilibrium, those disappointed today by the surge in oil must have thought the Fed could print trillions of dollars, direct them via fire hose into the economy, and, under a nearly zero interest rate environment, strengthen or hold the dollar's value enough to keep oil prices low? You see, in the search for equilibrium, you pay one way or another - if not at the pump, then at the bank. Low interest rates and tons of cash pumped into the system - guess what - here comes a surge in oil prices.

The various economic stimulus efforts remind me of a chess game where all you have left is your king and you're frantically hoping to reach the 50-moves rule to claim a draw. I'd say we are on or about move 10, including the stimulus packages, the change in mark-to-market rules, reduction in rates, bank and auto bailouts, etc. The problem here is that this is not a game of chess and there is no economic benefit to a draw.

Our current path of ‘Equilibrium Defiance' will eventually catch up with us. Just consider one element of the economy and its metrics that seem largely out of equilibrium. For lack of a better name, I call it the C&I Loan-Equity Comparison. It shows two things: In red, the price of the S&P since 1950; in blue, the volume of Commercial and Industrial Loans (in billions) per the Federal Reserve. When graphed, you'll notice a fairly high correlation between the two metrics up until about 1995, which one could argue is when looser credit started - both commercially and for consumers, with only brief downturns in late 2000 and after 9/11, taking off again circa 2003, and taking with it the S&P value. Makes sense, right?

The easy access credit tempted companies and consumers to borrow at levels never before seen and spending reached historic heights. Interestingly, how does one explain our current situation? Why is the present downtick in C&I loans so slight? Is this the 100-year storm of credit crunches? It is no secret that small and mid-sized companies are having their credit lines cut or eliminated.

What are the plausible explanations? I believe that the government is pumping trillions into the credit system to prop it up, in true defiance of equilibrium. The economic activity indicated by the current levels of the S&P won't sustain this level of C&I loan activity. On the public market side, debt-to-equity ratios are now completely out of whack. Companies that can do so are drawing on available credit lines for operational runway, not growth. Many of those companies are using The Receivables Exchange to sell receivables to stay within their debt ratio covenants.

C&I loan activity won't remain at these levels. As they return to equilibrium, we will find ourselves facing another principle of equilibrium: survival of the fittest. As the working capital pie shrinks (substantially), the number of companies fighting over the smaller portion is only going to get fierce.

Nic Perkin is Co-founder and President of The Receivables Exchange, an accounts receivable financing tool. The Exchange is the world's first online marketplace for real-time trading of accounts receivable. Find out how to trade accounts receivable.

Meanwhile, the consortium of Blackstone, Carlyle, and Wilbur Ross's planned purchase of Florida-based Bank United will be a poignant litmus test. These funds are taking no chances - demonstrated by massively overcapitalizing the bank with equity, and bringing in one of the top bank executives, John Kanas. These positives demonstrate that despite its checkered past, private equity still has access to two critically scarce resources that are necessary in times like these; capital and talent. The accusation that the private equity industry will do the same thing it did to its leveraged buyout (LBO) targets is fundamentally misguided. In those cases, the leverage was entirely unregulated, except for the risk appetite of the marginal debt purchaser. Clearly, risk tolerance fell out of bed, and private equity funds went too far in the gearing of their acquisitions. This will not happen in the banking industry, as capital levels are already highly regulated and monitored, and the banks will likely be exposed to new legislation on executive pay. The FDIC's guarantee to cover losses on the acquired loan book is sure to be scrutinized as well. From the perspective of the taxpayer, these guarantees are no different than the Treasury providing artificially low, non-recourse loans to private investors, under PPIP or TALF. It's just a different way to skin the cat.

The state of lending is sure to receive a boost from private capital purchasing failed banks, and also forming new banks with the ability to lend. New loans will be much stricter than in years past. Collateral requirements are going to rise dramatically, as will bank-friendly covenants. This does not favor the weak. The opportunities for small and struggling companies to take advantage of new lending will be limited. New loans will flow to only the strongest candidates and is sure to leave a large number of small and mid-sized businesses to find other methods of righting their ships. As a result, The Receivables Exchange will continue to serve as an efficient, viable alternative source of working capital for these cash-strapped companies.

Bill Siegel, CFA, is Vice President, Head of Liquidity Desk at The Receivables Exchange, an accounts receivable financing tool. The Exchange is the the world's first online marketplace for real-time trading of accounts receivable. Find out how to trade accounts receivable.
 

The recent sell-off in the long end of the U.S. Treasury market has forced its way to the center of attention and will have material effects on both the saliency of any economic recovery and the state of the lending market. The uptick in yields was caused by less than stellar Treasury auctions where institutional and foreign investors, i.e., China, decided to favor the shorter maturity issues. This has caused a negative feedback loop, where now the FOMC's efforts to keep mortgage rates low by purchasing mortgage securities in the open market will have to shift to purchases of long-dated treasury bonds as well. This has caused mortgage rates to jump, and could derail the stabilization of the housing market. All of these open market purchases involve the U.S. mint printing lots of money. Inflation pundits are back on CNBC and now, unfortunately, the warnings are becoming a bit more tangible. Geithner's upcoming trip to China is almost shameful. I can envision poor Tim handing out neatly bound pitch books from his briefcase as he presents to the Chinese Finance Minister on why they should continue to finance the U.S. account deficit. So this is what it has come to. We have sent our top man off on a "road show" to sell our recovery story to foreign investors, like the U.S. is some speculative internet company trying to place IPO shares.

On the lending side, a slight uptick in long dated Treasury yields is actually healthy. Steep yield curves allow banks to expand their net interest margins, and build tangible equity through traditional lending activities. The most recently released Treasury data regarding institutions receiving TARP funds, showed that commercial and industrial (C&I) lending remained stagnant in March. Balance sheets continued to contract, and total originations rose only because mortgage originations spiked during the first quarter. Mortgage origination volumes will fall dramatically now that mortgage rates have risen so quickly. The third quarter will be an interesting test of the bank's willingness to take advantage of the steepening yield curve. If the banks actually expand their balance sheets through new C&I origination, we can gain confidence that their books are getting cleaner. More likely though, the fertile lending environment will be shunned as problem loans continue to stymie activity.

In reading through the treasury's report on March activity at TARP banks, one of the more striking observations is in the comments noted by each institution on why C&I lending remained weak. A large number of banks expressed that there was a burnout in demand for loans. This makes sense in the context of businesses that have given up trying to get through the door, and are now looking for alternative ways to source working capital. Martin Fridson, a longtime stalwart in the credit space, recently noted that there is capital out there to fund lending, just not from traditional sources. Fridson also noted that he believes the much-needed corporate refinancing will take place over the next 12 months, but it will happen through alternative sources of capital. Burnout in demand and the rise of alternative funding will augment the efforts here at The Receivables Exchange to make receivables finance an easy and efficient mainstream working capital management tool and continue to raise the relevance of alternative sources of finance.

Bill Siegel, CFA, is Vice President, Head of Liquidity Desk at The Receivables Exchange, an accounts receivable financing tool. The Exchange is the the world's first online marketplace for real-time trading of accounts receivable. Find out how to trade accounts receivable.  

Any institution that has sniffed a government financial rescue program is fair game to have their fiduciary duties dictated to them by the public. This explains the current deluge of public offerings and asset sales our largest financial institutions are conducting in order to repay TARP funds. Banks want those TARP funds off their books as fast as humanly possible. The velocity with which these companies are raising capital is probably motivated more by the desire to no longer be beholden to Congress, rather than just complying with the stress tests results. This is not to say that taxpayers should not have a voice in how their tax dollars are put to work. The real issue involves showing the average taxpayer some tangible return on their TARP money.

Saving a company - and a workforce - carries a certain tangible psychological return for the average person reading the news. Having their tax dollars safely returned to the Treasury plus some accrued interest is not tangible, and is thus ignored. The Treasury would be well suited to go on the offensive here, before these requests get totally out of hand. Paulson admittedly gave himself an ‘F' for marketing the original TARP to Congress. Geithner should slap some numbers together and show the public that they are actually earning a positive return on invested TARP funds to settle the public down. Otherwise, there is no limit to how ridiculous the intervention requests will get.

The early traction we have seen on TRE has been augmented by the preoccupation of the banks. From my view here at the Liquidity Desk, I have a fairly high degree of conviction that the banks will continue to ignore small businesses for a prolonged period of time. I gain this conviction through the conversations I have with current and new Sellers on a daily basis. The common sentiment is that the banks are not going to dive right back into new lending once they have cleaned their balance sheets. The balance sheet cleaning process alone will take a great deal of time. In the meantime, small businesses still need working capital finance, and TRE is rapidly picking up its share.

Bill Siegel, CFA, is Vice President, Head of Liquidity Desk at The Receivables Exchange, an accounts receivable financing tool. The Exchange is the the world's first online marketplace for real-time trading of accounts receivable. Find out how to trade accounts receivable. 

The FDIC has seized 58 banks in the past 15 months and there are no signs of abatement. Despite the dismal headlines, one end of the banking spectrum that has fared quite well during this Credit Crisis is the Community Banks. Unlike the "too-big-to-fail" banks, they never veered off their conservative course, sticking to more traditional best lending practices that, at the time, didn't seem exotic enough to keep the interest of the likes of the large banks. Perhaps, more importantly, they stuck to the golden rule: know your customer. At a time when lending poured out like a broken water main, Community Banks steered clear of speculative , overvalued financial products such as credit default swaps that resulted in high default rates and huge write offs. Now, their doors are open to lending and the more the merrier.

But, there's still one problem: borrowing demand remains low. And yet, small businesses are struggling to find access to working capital to maintain daily operations. As in most times - but never more than these uncertain times - cash is king. Small and mid-sized business' fear of recession will only continue to worsen, and they will be left without the ability to handle increased debt and higher monthly payments. The search for working capital remains.

If nothing else, the Credit Crisis has taught many small and mid-sized companies a valuable lesson - it's time to move away from reliance on one source of funding and to adopt new, more innovative solutions. Accounts receivable financing is just one of those solutions. It's time for companies to take control of their working capital management and to be able to reinvest their cash back into their business on their own terms, regardless of the economy.

Amanda Potashner, Associate, Marketing Communications at The Receivables Exchange, an accounts receivable financing tool. The Exchange is the world's first online marketplace for real-time trading of accounts receivable. Find out how to trade accounts receivable.

This week marks the celebration of National Small Business Week, a week-long initiative to honor and champion the nation's millions of small businesses that drive our economy. I would imagine that while government, media and business organizations gather at the luxurious Mandarin Oriental Hotel in D.C. to recognize these businesses for their efforts and accomplishments, the glaring question is: Where are all the small businesses?

The unfortunate reality is that the majority of small businesses, America's backbone, are fighting for their life in "Everycity" U.S.A. as they struggle to survive the credit crisis in the midst of economic uncertainty. We hear it every day at The Receivables Exchange. For many companies, the scarcity of credit and increase in bank closings will likely be the death knell for many hard-working entrepreneurs who make this country what it is.

Working capital and short-term liquidity mean the difference between staying afloat and going belly up - never more so than in these tough times. So it makes sense this week that while the national "shout out" and expanded awareness is a nice pat on the back to the small and mid-sized business (SMB) community, for most SMBs this week is no different. They continue to work hard and run their daily operations while searching for solutions that will help them gain efficient access to working capital. We're glad to be part of the solution for our Members. But, more importantly, we hope that this week's celebrations bring meaningful innovation and solutions to help struggling business owners stay alive in the downturn - and maybe even to be stronger for the upturn.

Amanda Potashner, Associate, Marketing Communications at The Receivables Exchange, an accounts receivable financing tool. The Exchange is the the world's first online marketplace for real-time trading of accounts receivable. Find out how to trade accounts receivable.

Treasury Secretary, Tim Geithner, recently stated, "Over time, our financial system should emerge stronger and less prone to excess". The only thing more reliable than financial systems swinging between excess and moderation is the predication that these swings are a thing of the past following the latest collapse. Things have stabilized for sure. As Geithner recently pointed out, the Fed's quantitative easing has had a dramatic effect on lowering mortgage rates, new debt issuance has sprouted in both the high grade and high yield debt markets, and government programs have been able to prop up both municipal bonds and the market for securities backed by consumer and auto loans.

In a big win as well, the world did not implode when the Treasury released the results of bank stress tests. The only thing missing is actual bank lending, which has yet to surface. Debt issuance is a function of corporate demand for financing and the reciprocal institutional buy-side demand for new bonds. This is not to be confused with the actual extension of credit by a bank, though it may be a precursor. My sense is the Treasury has been bailed out by the rally in the stock market. I have mentioned previously, that a rising equity market is the quickest way to turn sentiment. The affect of the recent rally has been dramatic. In fact, as the S&P bottomed this year in the second week of March, calls for Geithner's resignation hit a fevered pitch. Since then the S&P has rallied over 20%, and calls for his head have all but subsided. If the market had been flat or down since then, you can almost guarantee we would have different person in charge of the Treasury.

Despite the stabilization, the question still remains of whether banks are actually healthy enough to lend anew, which has yet to materialize. For small businesses, all the above improvements in various pockets of the credit space are nice, but actual lending from local and regional banks is necessary for the backbone of the U.S. economy to see a material improvement in the credit environment.

Bill Siegel, CFA, is Vice President, Head of Liquidity Desk at The Receivables Exchange, an accounts receivable financing tool. The Exchange is the the world's first online marketplace for real-time trading of accounts receivable. Find out how to trade accounts receivable.