It’s been a tough few years for the U.S. economy, especially for small and medium-sized businesses (SMBs). Rising interest rates and a tightening credit market are making it difficult for some businesses to access capital. Banks granted about 18.8% of loan applications in June, down sharply from early 2020, before the pandemic, when they approved nearly half of all loan requests. 

Recently, in an effort to combat this burgeoning credit crunch, the U.S. Small Business Administration (SBA) announced it was making it easier for nonbank lenders, such as fintechs, to issue SBA loans. Critics of the move argue that the new lenders face less regulatory supervision, which could be riskier for the borrower, lender and taxpayers, as some small business loans are guaranteed up to 85% by the SBA. 

Regardless of the source, small- and medium-sized business owners know that limited access to capital means that successfully managing cash flow is crucial to their ability to run their businesses.

Cash flow management is critical — and challenging — for SMBs. Delayed payments, emergency and seasonal expenses, and prolonged payment clearing and funds availability times can wreak havoc on SMB owners’ ability to manage their finances. The results can be dire. Running out of cash to cover operating costs is the second most common cause of SMB failure, with 38% of SMB closures attributed to it.

Access to real-time payments can help alleviate some of the challenges presented by the current credit crunch and the attendant cash flow concerns. With real-time payments, businesses can utilize their cash instantly to better manage unexpected expenses and prevent operationally devastating financial setbacks.

Here are three ways real-time payments can help SMBs during the current credit crunch:  

1. Remove financial uncertainty as to when payments are complete and funds are available 

Real-time payments remove financial uncertainty by eliminating any lag businesses experience when expecting or making payments. While more traditional payment methods such as ACH and checks have clearing and settlement times that take days (and are not processed on weekends or holidays), real-time payments are initiated, cleared, confirmed to the sender, and funds made available to the receiver within seconds at any time of the day or week, holidays and weekends included. 

2. Gain transparency into capital to improve cash flow

Real-time payments also provide SMBs a much clearer picture of exactly how much cash they have on hand, what’s coming in and when, and by effect, SMBs are able to avoid potentially overdrawing their accounts. When using real-time payments, businesses can make payments on the date they’re due rather than having to plan several days out for an ACH payment or up to a week for a check to clear. One study found that 53% of companies cite better cash flow management as a benefit of real-time payments.

3. Increase efficiency and update manual processes from paper checks

Today, many SMBs  still rely on paper checks to move money, which is labor-intensive and subject to error. With real-time payments, small businesses can become more efficient and improve their customer and supplier payment processing by switching to real-time payments that clear, are confirmed to the sender, and make funds available to the receiver instantly. 

The credit crunch is real, and small businesses have a solution with real-time payments. By providing businesses instant access to their cash, real-time payments help ease a business’s dependency on credit that is increasingly becoming more expensive. SMBs interested in real-time payments should check with their bank or credit union to see whether the service is offered. SMBs may also find that their online payment technology providers already offer access to real-time payment capabilities. 

Contributed to EO by Jim Colassano, the senior vice president of product development and strategy at The Clearing House, bringing over 25 years of experience in all facets of the payments and cash management business.

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