169,401 New Listings - March 2010 - Last update March 15, 2010 6:15 AM ESTThe Foreclosure Crisis With its Credit Freeze is Squeezing Out Small Business Concerns
The foreclosure crisis with its credit freeze is squeezing out small business concerns. But life has to go on – it has a tendency to go along and this has given a new band of lenders to come to the forefront. One of them is Richard Eitelberg the founder and president of Hartsko Financial Services. Their offers are tempting albeit costly as they reach out to hard pushed entrepreneurs that are being refused loans by the banks.
He sells purchase-order financing to firms that are engaged in selling goods; the manufacturing is done overseas. It is comparatively a new type of business – not more than two decades old. It is a changed version of a very old and widespread practice of factoring. In the latter the business sells the bill of lading at a discount so as to get the money at a faster pace. The factoring company meanwhile pockets a hefty fee.
Purchase-order financing is akin to factoring but a notch higher in the financial ladder. Purchase orders are inked guarantees from a buyer that it is promise bound to buy the product. By financing these purchase orders Eitelberg basically makes payment to the factories to manufacture the items. Hartsko also finances the shipping of the finished product from the factory. Once Hartsko has made the payment he pockets the cuts and hands over the balance to its client.
In USA currently there are about six important purchase-order financing firms. It is however difficult to find out the actual number. Edward P. King of King Trade Capital of Dallas is a competitor of Hartsko. His firm had entered the market nearly 17 years previously. He said that in 2009 his business had increased by 10%. He also said that had he wanted to he could have doubled or even trebled his volume of operations but he was wary and hesitant looking at the health of the economy. He said, “It was a risky year. We could have grown an enormous amount, but I’m not sure we wouldn’t be fighting some battles right now.”
Banks are also putting in their fingers in purchase-order financing pie, but this is only for the existing customers. Wells Fargo has a separate section to deal with this type of lending and has reported that in this segment work has picked up even though its conventional lending to small business units has dropped.
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