Rising Demand for Working Capital Finance in the US

According to The Conference Board, the United States is experiencing strong economic growth, with real GDP expected to exceed 6% this year. Growth, driven by federal stimulus and pent-up consumer demand, is expected to continue in the second half of 2021 and into 2022, with quarterly annualized growth rates of 8.6% and 6.4% predicted for the second and third quarters, respectively. As a result of this economic expansion, banks and credit unions that provide short-term working capital finance are experiencing increased demand.

Working capital finance refers to the financing of a company’s short-term operational needs, such as the management of day-to-day expenses and the payment of bills. It is essential for small and medium-sized businesses in particular, as it allows them to manage their cash flow and support growth. Without sufficient working capital, businesses may struggle to cover expenses, leading to financial strain and potentially hindering their ability to take advantage of new opportunities.

The COVID-19 pandemic had a significant impact on demand for working capital finance in 2020. The Secured Financing Network reported that the domestic factoring industry declined by over 25% to a total volume of under $80 billion, while asset-based lending commitments in their network fell by more than 21% to $83 billion. Many businesses were able to mitigate this decline through the use of the Paycheck Protection Program (PPP), which provided over $770 billion in funding. However, as the PPP and other stimulus programs come to an end, small business owners will once again face the need to seek financing for new growth opportunities.

This increasing demand for working capital finance is being driven by the current economic recovery and expansion. As businesses use up their PPP funds and seek to capitalize on new growth opportunities, they will increasingly turn to lenders for short-term financing. It is important for banks and credit unions to be prepared to meet this demand, as small and medium-sized businesses typically utilize 40 to 60 cents of short-term working capital for every $1 in gross revenue generated.

There are a variety of working capital finance options available to small and medium-sized businesses, including invoice financing, asset-based lending, and lines of credit. It is important for lenders to be familiar with these options and be able to assist business owners in selecting the most appropriate solution for their needs. Business owners, in turn, should carefully consider their options and ensure that they have a strong credit score and a solid business plan in place before seeking working capital finance.

In conclusion, the current economic recovery and expansion in the United States is leading to a rising demand for short-term working capital finance, presenting opportunities for banks and credit unions that offer such services. It is essential for small and medium-sized businesses to have access to sufficient working capital in order to manage their cash flow and support growth. Lenders and business owners alike should be aware of the different working capital finance options available and carefully consider their needs and resources before entering into any financing agreements.

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