Posts Tagged ‘Rsquo’

The payday loan business has been thriving throughout the last ten years, as more and more states have either loosened their banking rules or looked the other way while these companies moved in. While the nation, as a whole, already has more payday loan and check cashing stores than McDonald’s and Burger King restaurants combined, South Dakota has more advance loan stores per capita than all but one other state. The sparsely populated home of the Black Hills has more than 300 such stores; that’s one per 2500 residents. If California had as many per capita, it would have 12,000 such businesses.

But California does not. Why is South Dakota a haven for these expensive lenders?

Loose financial laws, for one thing. South Dakota has few inhabitants, but the legislators within the state decided years ago to draw out of state business by easing restrictions on the state’s banking laws. As a matter of fact, the state no longer has any laws at all concerning rates of interest. Loan companies doing business within the state may charge whatever rates of interest they like.

Along with that is the implication that any business based within the state can do business somewhere else under that state’s laws. So, banks, credit card institutions and quick cash loan corporations have flocked to South Dakota to profit. And while those businesses have done well within the state, they have done especially well outside the state, while lending money all over the country at South Dakota interest rates. By doing so, they have managed to circumvent the lending laws of other states that do not permit high interest quick cash lending.

Of course, the plethora of such stores in South Dakota suggests that there is a need for such business within the state, as well. Sioux Falls has more than 40 payday loan stores, a surprising number for such a fairly small town. Then again, the state is largely rural, has fairly little industry short of banking and agriculture, and therefore has a population base that earns comparatively low wages.

And where there are low wages, you’ll find payday loan stores as well as people who need short term cash loans. These businesses do especially well in neighborhoods where individuals live paycheck to paycheck and need periodic aid to tide them over until payday. The fact that they may have to pay 400% or more to borrow such sums for fourteen days appears not to bother the borrowers much, or else we’d be writing about all the cash advance loan stores that are closing there.

And the sensation isn’t unique to South Dakota. Other states which have loosened their banking laws, such as Utah, have found that when the banks move in to do business out of state, the cash advance loan stores move in to do business in state. It’s just part of the price that politicians pay when they sell their states out to those who wish to lend money at high interest.

Many times with small businesses, there can be a shortage in operating capital as you have several unpaid invoices that are set up for payment within 2 or 3 months. As you have already earned this money that is owed through the sale of goods or services, who’s to say that you aren’t able to have your money now for operating capital that may be needed for your small business?

Invoice factoring is a great way to get this operating capital by selling your accounts receivable in order to get the amount owed to you less a specific percentage. Some companies charge lesser rates, some as low as 2%, while others may charge more, some as high as 5%. The real difference is the actual factor, their experience, their credentials, and the services they propose to offer.

Once you sell your accounts receivable, these factors will take the amount of all the unpaid invoices that they are purchasing, subtracting their rate percentage from that amount and providing you with an advance that can be anywhere from 80% to even as much as 97% with some factors. This advance will provide you with immediate operating capital that you may need, without having to deal with a long and difficult process for the funding.

These factors will hold a reserve as insurance that your clients pay their due payments. In the event that the clients don’t pay, the invoice factoring company is able to retain this reserve payment, but the advance is yours to keep. The advance is never to be repaid unless your client pays you in full on the invoice in question, at which time you will be responsible for repayment to the factor. If the clients do pay as scheduled, you are given the reserve fee held and the factor is able to keep all else, including any interest or late payment charges that have been included.

The thing about accounts receivable factoring is that you are selling the rights to your collections. You aren’t able to collect on those invoices, and you have the advantage of releasing the risk of these unpaid invoices not being paid at all, while getting necessary financing for your business.