Advance and Funding: How This Solution Can Save American Small Businesses from Bankruptcy
Creators: name: ARAUJO, LIGIA
Publisher: name: Zenodo
Year: 2025

description: Advance and Funding: How This Solution Can Save American Small Businesses from Bankruptcy

Abstract

Invoice factoring (receivables discounting) and the provision of financial resources have emerged as key strategies to mitigate the bankruptcy risk faced by small businesses in the United States. In an increasingly dynamic business environment, driven by the rise of fintechs, these practices offer quick access to working capital and help ensure operational continuity. This article examines the American ecosystem for receivables financing and funding, detailing the opportunities presented by fintechs and comparing aspects of the U.S. model to the Brazilian context. It further explores how Brazilian products—such as those offered by major financial institutions like Banco do Brasil—could be adapted to the U.S. market. Finally, the discussion centers on how these solutions can broaden credit availability, reduce red tape, and encourage innovation among small and medium-sized enterprises, fostering financial sustainability and boosting entrepreneurship.



1. Introduction

Small businesses are the backbone of the U.S. economy, accounting for a significant portion of the country’s GDP and generating millions of jobs. Yet they continually face threats to their survival, primarily due to the challenges in accessing working capital. Without sufficient funds to cover short-term expenses and finance their operations, many entrepreneurs resort to high-cost lines of credit or, too often, risk bankruptcy.

In this context, invoice factoring and resource provision through fintechs have become a cornerstone in ensuring these businesses have the liquidity they need. The concept is straightforward: rather than waiting weeks or even months for customer payments, small businesses can immediately secure part of those future receivables, thereby safeguarding the cash flow required to meet ongoing obligations.

Although factoring is not a new idea, technology has made it more accessible and efficient. This article delves into how this system functions in the United States, analyzes the role of fintech in promoting more inclusive lending, and offers a broad comparison with the Brazilian experience—highlighting the feasibility of adapting products and practices from institutions like Banco do Brasil to the U.S. market.



2. The Small Business Landscape and Bankruptcy Risk in the U.S.

2.1 Economic Significance

Small businesses make up around 99.9% of all U.S. enterprises and employ nearly half of the private-sector workforce. This is a diverse universe, ranging from family-owned eateries to tech startups, and it is responsible for much of the innovation and vitality within the marketplace. However, these businesses also face unique vulnerabilities, such as limited negotiating power with suppliers, constrained cash flow, and difficulty securing credit at competitive rates.

2.2 Main Causes of Bankruptcy

Many of these companies shut their doors due to insufficient working capital, delayed receipts, and inadequate financial planning. Another hurdle is the rigid nature of traditional lending: banks typically require collateral, extensive credit histories, and cumbersome bureaucratic processes that can impede timely access to funds. As a result, receivables factoring emerges as a solution, allowing businesses to transform future-dated sales into immediate cash.

2.3 The Role of Fintechs

In recent years, fintechs specializing in credit and payment solutions have introduced automated processes, real-time data analysis, and more precise risk evaluations. This reduces paperwork and expedites the flow of funds, benefiting especially those small businesses urgently in need of financial support to stay in operation. More than just loans, invoice factoring has proven to be a vital tool for business resilience, mitigating the pitfalls of fluctuating sales and extended payment cycles.



3. Receivables Factoring: Concept and Benefits

Receivables factoring is a process by which a company sells the payment rights to its invoices (or credit notes) to a financial institution or fintech. In exchange, it receives a portion of the total value—typically 70% to 90%—almost immediately, paying a fee or discount on the advanced amount.

3.1 How It Works





Issuing Invoices: The business issues invoices to its customers, with due dates ranging from 30 to 120 days, depending on contractual terms.




Requesting Factoring: Rather than waiting for payment, the entrepreneur contacts a factoring provider, submitting relevant invoice information.




Risk Assessment: The fintech evaluates the end-customer’s reliability and the likelihood of the invoice being paid in full, possibly checking credit history and using machine-learning algorithms.




Release of Funds: Upon approval, the business receives a portion of the invoice amount in its bank account within hours or a few days.




Settlement: Once the end customer pays the invoice, the fintech withholds a predetermined fee and remits any remaining balance.



3.2 Advantages





Improved Cash Flow: Avoids prolonged delays in receiving funds, enabling on-time payment of salaries, suppliers, and other obligations.




Quick Access to Capital: Unlike traditional bank loans, the approval process can be much faster.




Flexibility: Companies can pick which invoices to factor and at what volumes, fine-tuning operations to immediate cash needs.




Less Dependence on Major Banks: With fintech competition, factoring fees may be lower, and customer service is often more personalized.



Hence, receivables factoring can act as a preventive strategy against bankruptcy, offering more predictable finances in a volatile market where late payments can prove fatal for small businesses.



4. Resource Provision: Another Path to Liquidity

In addition to factoring, direct funding from financial institutions or fintechs is another crucial approach for small businesses striving for survival. Here, the spotlight is on short-term credit lines, secured loans, or even partnership-based models in which fintechs invest in return for a share in profits.

4.1 Specialized Credit Lines

Fintechs may offer tailor-made credit lines for specific sectors like restaurants, e-commerce retailers, or freelancers. Unlike conventional lenders, these providers often incorporate performance metrics such as online sales data, customer reviews, and growth projections into their risk analyses, rather than relying strictly on traditional credit scores or physical collateral.

4.2 Data-Driven Solutions

Fintech companies typically integrate their platforms with enterprise resource planning (ERP) systems or online marketplaces, collecting data on sales, return rates, average ticket size, and other performance indicators. This transparency yields faster, clearer approval processes, ensuring the entrepreneur can access the required funding without excessive red tape.

4.3 Partnerships and Investment

In some cases, fintechs operate as investors or “capital providers,” exchanging capital infusion for revenue sharing or an exclusive agreement to handle payment and financial management services. This arrangement can be advantageous for the entrepreneur, reducing upfront loan costs and aligning fintech success with that of the business.

Both receivables factoring and data-based funding represent major shifts in how American small businesses access credit. By democratizing capital supply, these methods reduce the likelihood of bankruptcy, encourage innovation, and enhance the competitiveness of the overall business environment.



5. How Fintechs Enable Factoring and Funding

5.1 Process Automation

Through the use of artificial intelligence, machine learning, and big-data analytics, fintechs can conduct instantaneous risk assessments. By automating credit checks and invoice validation, these platforms quickly disburse funds, addressing the urgency many small businesses feel when seeking working capital to avert operational disruptions.

5.2 Integration with Payment Platforms

Another innovation fintechs bring is the integration with electronic payment systems, facilitating real-time visibility into sales volume, chargeback rates, and payment punctuality. Fintechs can then dynamically adjust the line of credit and pricing based on real-time risk profiles.

5.3 Digital Contracts and Blockchain

Some solutions leverage smart contracts on a blockchain to ensure invoice and transaction traceability. Although not yet ubiquitous, such technology promises greater security and transparency, lowering fraud risks. Under these arrangements, settlement occurs automatically when contract conditions are met, enhancing cash-flow efficiency.

5.4 Personalized Service

Unlike traditional banks, fintechs generally invest in digital, agile, and more empathetic customer support channels. Chatbots and instant messaging portals allow entrepreneurs to promptly clarify their questions without scheduling in-person appointments or navigating long bureaucratic processes.

5.5 Lower Bureaucracy

Fintechs’ appeal often lies in simplified procedures that forgo large stacks of paper documents. This streamlining accelerates onboarding and incentivizes small businesses to try these solutions. Transparent fees and contract terms further strengthen trust between the funding provider and the entrepreneur.

5.6 Competitive Pricing

With multiple fintechs competing to serve the small-business segment, both factoring fees and funding rates tend to be more favorable than those offered by traditional banks. Additionally, the ability to serve niche markets—such as the food industry, online retail, or consulting—enables each fintech to design specialized products tailored to the unique profiles of their clients.

Combined, these features create a broader range of credit options, giving small businesses the freedom to select whichever solution best aligns with their risk and liquidity requirements, thus reducing bankruptcy rates.



6. Comparing Models: U.S. vs. Brazil

6.1 Market Similarities

In both the United States and Brazil, fintechs have gained traction by delivering faster, less bureaucratic solutions than those offered by major banks. Entrepreneurs in both markets struggle to obtain affordable credit, opening the door to digital platforms and innovative services.

6.2 The Brazilian Context

In Brazil, initiatives such as PIX and the Central Bank’s strong commitment to payment arrangements and Open Banking have pushed the adoption of fintech solutions. Institutions like Banco do Brasil provide invoice factoring, credit lines, and digital payment services that may inspire U.S. banks and fintechs aiming to broaden their portfolios. Additionally, the concentrated nature of Brazil’s banking sector has historically paved the way for fintechs to emerge with more flexible, cost-effective services.

By contrast, U.S. regulations are more fragmented—varying by state—yet access to venture capital is more robust, and its innovation ecosystem is well-developed. This backdrop speeds up the emergence of new platforms and fosters collaboration among fintechs and major tech firms.

6.3 Cross-Learning

While Brazil could benefit from the intense fintech competition in the U.S., American companies may draw lessons from Brazil’s successful implementation of quick, simplified payment methods (like PIX) and Open Banking tools. Thus, Brazilian-style products focused on factoring and resource provision could be adapted for U.S. consumers, subject to local legal frameworks and market nuances.



7. Notable Brazilian Products That Could Thrive in the U.S.

7.1 Banco do Brasil’s Factoring Lines

Banco do Brasil is known for offering factoring and credit lines aimed at micro, small, and medium-sized enterprises. These include solutions for credit card receipts, invoices, and checks, simplified through digital channels. With appropriate regulatory adjustments and strategic partnerships, similar products could be introduced stateside, targeting businesses seeking practicality and less red tape.

7.2 Instant Payments

In Brazil, PIX has revolutionized transfers and payment methods, removing high fees and slow clearing periods. Although the U.S. has various instant-payment systems (Zelle, Venmo, among others), Brazil’s example might encourage a more standardized approach to accessibility and competition in this sector.

7.3 Collaborative Credit Models

Some Brazilian fintechs apply risk assessments that combine social-network data, purchase history, and even behavioral insights. This personalized methodology could be replicated in the American market, identifying creditworthy small businesses more precisely while lowering default risks.



8. Barriers, Challenges, and Outlook

8.1 Regulation and Credibility

For invoice factoring and funding solutions to flourish in the U.S., compliance with federal and state laws regarding credit issuance, consumer protection, and anti-money laundering is essential. Importing Brazilian products would entail feasibility studies, specialized licensing, and local partnerships to ensure full regulatory alignment.

8.2 Financial Literacy and Cultural Barriers

Many entrepreneurs lack awareness of fintech benefits or are apprehensive about adopting digital financial services. Investments in educational campaigns and marketing strategies that emphasize security and ease of use are critical for boosting participation. Likewise, a robust customer support framework can address cultural aversions and build trust.

8.3 Competitiveness and Continuous Innovation

The American fintech arena is fiercely competitive. To stand out, Brazilian-inspired products must exhibit clear differentiators—whether in lower fees or in exclusive features like ERP integration. Scalability and the capacity to adapt rapidly to shifting consumer preferences are also decisive.

8.4 A Promising Future

Despite the obstacles, there is ample room for growth. The surge of e-commerce and the demand for accessible credit pave the way for the acceptance of new products. Brazil’s experience, known for its inventive payment and factoring models, can serve as a blueprint for U.S. entrepreneurs and institutions, provided they fine-tune their offerings to local complexities.



9. Practical Recommendations for Entrepreneurs





Market Research: Before adopting or promoting factoring and funding services, thoroughly study your target audience’s needs and review relevant state regulations.




Strategic Partnerships: Teaming up with established fintechs or major banks can speed market entry, sharing infrastructure, regulatory expertise, and an existing customer base.




Automation and Integration: Technology should underpin operations, from risk assessments to data checks and contract signings, ensuring scalability and reliability.




Training and Awareness: Provide educational materials and programs demonstrating the benefits of receivables factoring and digital credit lines. When entrepreneurs grasp the mechanics, adoption rates climb significantly.




Risk Management: Even with advanced analytics, defaults remain a concern. A diversified portfolio of clients and credit limits proportional to each company’s history can help mitigate exposure.



By following these practices, a financial services expansion can more likely succeed, avoiding issues related to lack of trust, regulatory hurdles, or minimal market uptake.



10. Conclusion

Invoice factoring and the provision of financial resources stand out as strategic solutions for small American businesses grappling with liquidity and the risk of bankruptcy. Fueled by fintechs, these methods simplify access to working capital, reduce bureaucracy, and make cash flow more predictable—vital elements for sustaining and growing smaller ventures.

At the same time, the Brazilian example—featuring institutions like Banco do Brasil and real-time payment systems—illustrates how certain products and practices can be adapted to promote efficiency and financial inclusion. Adopting these models is not without complications, involving regulatory, cultural, and competitive considerations. Nonetheless, the chance to expand credit options and democratize access to capital provides a compelling incentive for both entrepreneurs and investors.

Today’s environment combines technology, real-time data analytics, and adaptable business models to form a vibrant financial ecosystem—a space receptive to innovations that can indeed rescue companies from the brink of insolvency. Managers should keep abreast of evolving trends, investing in financial literacy and strategic partnerships to secure the sustainability and progress of their operations.



References and Suggested Readings





U.S. Small Business Administration (SBA): www.sba.gov




Harvard Business Review: Articles on financial innovation and SME management.




Banco do Brasil: Credit and factoring products for micro and small businesses.




World Bank: Doing Business Reports (various editions).




OECD: Reports on financial digitalization and SME support.