Profit vs Cost of Money

Today the revenue projections for MSME (Micro Small Medium Enterprises) need to take in account the cost increase of borrowing money to operate. The prediction is that the US Bank prime rate will be around 5.75% or more in the last qtr. of 2023. Federal Reserve Chair Jerome Powell said last week: Silicon Valley Bank’s collapse and the banking system upheaval it triggered” are likely to result in tighter credit conditions for household and business, which would in turn affect economic outcomes.”  To Borrow money (prime rate + points) have been the life for many businesses to operate but it requires the understanding to get this capital access it is not just to pay debt but to create solutions for business growth.   Looking the challenge today to get a new Bank Line of Credit (70% rejection), are you willing to pay 5 to 7% discount points to a 3rd party funder on your receivable invoice to have access of full payment 60/90 days early? In the same case, you can get the no-guarantee short loans within 48hr by providing the last 6 months bank statements. If your average profit is +20% maybe worth to do it. The decision needs to be made to accept reduction of profitability in consideration of the cost of money to secure future business.   One of the main reasons businesses need to borrow money is the amount of cash on hold in their supply chain (Cost of the Goods +Transportation + Warehousing) measured in billions of dollars in the global trade. This problem can be reduced by identifying events in the supply chain where they can collect early payments that will benefit the business cash flow.   Supply Chain / Trade Finance have different solutions:   Reverse factoring (buyer centric) PO Financing Export Financing Inventory Financing Factoring * most used    Access to early cash in the supply chain let you to utilize your own capital to fund your own suppliers in exchange for invoice discounts, that will compensate if not eliminate your initial cost to get the SCF short loans. Creativity Financing: New or unusual ways of legally getting money to finance something such as a home, project or business.

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