Magazine article American Banker

Small Banks Using Factoring to Build Relationships

Magazine article American Banker

Small Banks Using Factoring to Build Relationships

Article excerpt

Reaching deeper into the small-business market, Founders Bank of Arizona, Scottsdale, began offering accounts-receivable financing last month.

"Hopefully these are clients that will grow into conventional bank customers," said Julian Fruhling, president and chief executive officer of $123 million-asset Founders Bank.

Founders Bank isn't alone in its decision to offer factoring. Aided by new computer software that tracks accounts receivables, more community banks are offering factoring to build early ties to businesses with little collateral.

Accounts receivable financing, or factoring, was traditionally offered by finance companies to small-businesses that couldn't qualify for conventional bank financing.

The businesses sell their accounts receivable as a form of short-term financing, and the lender collects directly from the small-business' customers.

About 1,000 community banks are using the Business Manager software from Tennessee-based Private Business Inc., a company spokesman said.

Private Business also helps banks identify accounts-receivable financing prospects in their area and provides a marketing specialist to explain the product to small-business owners.

The Business Manager software is one of 21 banking products from 14 companies that carries a seal of endorsement from the American Bankers Association. Two groups of bankers review a product and examine a company's financial history, sales strategy, and management before they endorse it, an ABA spokeswoman said.

Mr. Fruhling said the software helps the bank track invoices and create customer statements that would otherwise be too labor- intensive to be profitable. …

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