Did I Make A Bad Lending Decision

As with anyone sitting in the driver's seat of a lending company, there is always a cloud of worry looming. With any client, there always has to be a precaution taken with a deal. Experience only tells us that things can go south with any financing deal. The question we want to cover is, what makes us feel more comfortable in our own skin? Also, we will talk about handling an account we have worries about.

Your young hotshot sales guy just picked up a deal that seems to be paved in gold, great, where do we sign? Everything starts out great, excellent communication, easy verifications, but then something happens... It may not be the same case every time, but there is always a noticeable silence, an extended time between a payment, or something that raises a 'red flag'.

The flag has been raised, now where do we go in trying to get to the bottom of issue? Start with the facts - subtly ask your client if they know anything about a delay in payment, ask for a payment schedule, or just ask the status of a customer. The key is to tread lightly. Applying pressure to a  bruised fruit will only bring about problems.

After pursuing the previous avenue, and not having any luck, it is time to move on to the next step, the customer. Do some research on the internet, see if you can find any recent news about the company on the internet. Google has a great search to use for recent articles.

Check to see what that turns up, then you may have to move forward. At Lenders, we use multiple credit reporting agencies to see what customers are credit worthy. Commercial Credit Reports offers a great reporting, where they send changes in customer's AR, liens, finance updates, and banking updates, to keep us posted. I highly recommend this for a thorough report of a company's credit report.

The next step would to be to talk to your client. Discuss with them the current aging for the customer, ask about any issues they now of, etc. Escalate it to your client's credit manager, and ask about the payment experience from the last 60-90 days.

After getting all of the information you need, see if you can find some fresh trade and bank references. If you have a large exposure with that particular customer, we would recumbent asking for financial statements if the exposure is something to worry about.

Take all you have learned from this investigation, and get back with your client to share the info and discuss proper credit limits, and how to move forward with the customer in question.

Live Long and Factor!

Finding Capital

Finding Capital

Understanding Asset-Based Lending

For businesses seeking working capital to run their operations effectively and to finance growth, asset-based lending may be an excellent solution.

In its simplest form, asset0based lending involved a loan or line of credit secured by business assets under which the financial institution will advance funds based on a formula. The formula is usually a percentage of the current value of the  eligible assets. The assets usually consist of the borrower's accounts receivable and inventory, but sometimes other assets may be used. The advance percentage will depend on the assets being pledged. For accounts receivable and inventory, the percentage will typically range between 75 to 85 percent and 25 to 60 percent, respectively, and each is subject to certain eligibility criteria. A lender will usually conduct periodic audits to determine the  current value and eligibility of the assets. In addition, borrowers typically are required to provide a lender with various reports, such as accounts receivable agings and inventory valuations.

 Asset-based lending typically provides a low interest rate and favorable repayment terms. For the most part, asset-based lending is typically structured as a revolving line of credit that businesses can draw upon when needed, allowing them to avoid making fixed payments of principal and interest and incurring unnecessary interest. Because of the nature of asset-based lending, business usually use such loans for day-to-day cash flow needs rather than for purchases with a set dollar amount, such as equipment or other property.

It is important to bear in mind that a business must maintain the value and eligibility of each asset to ensure that it remains available for financing under the advance formula. For example, in the case of accounts receivable, the receivables in an account which remain unpaid after a certain period become ineligible for financing.

"Borrowers also need to make sure they are getting the maximum amount of advance they can get on the asset," says Barry Sloane, CEO of Newtek, a company that provides business services to small and medium-sized companies throughout the United States. "They should be aware of market rates or consult with an a experienced adviser."

Most small or medium-sized businesses can benefit from asset-based lending as long as they have appropriate assets to secure the loan or line of credit. Before approaching al lending institution, business should be prepared to provide two to three years of financial statement as well as business projections for the next tow to three years. It is recommended that a business also hire legal counsel with experience in asset- based lending to assist in negotiating the terms and structure of the transaction. Obtaining financing typically takes about 45 to 60 days, so businesses should apply to their financial institution as soon as they know they are going to need it.

Aset-based lending can be an effective tool for a growing business.

"The most important aspects for the borrower are negotiating the advance and the interest rates," he says. "OTher than that, the most important thing is making sure the asset is not impaired."

This article was supplied by City National Bank

Be sure to ask us about your Accounts Receivable Financing

Finding Clientelle for Factoring...

So you thought about opening up a small-time or a fully operational factoring business, well where do I start?

This may not be everyone's cup of tea, but there are many options that can be helpful towards finding people.

Some exploratory options may be:

• Word of Mouth
• Snail Mail
• Email
• Email Blasts
• Social Media
• Directories
• Classifieds
• CraigsList

Now you may say, well thanks for the info Captain Obvious, but how do I go about doing this?

Since this can be a timely matter, I will make a multi-post piece out of this story.

For now, we can start with Word of Mouth and Snail Mail.

So you are trying to find some new clientele, start with the basics of K.I.S.S.

Keep It Simple Stupid.

Talk to your friends, relatives, businesses, forums, anything that may help you in the local neighborhood. Some of the tricks I have learned to get into the local business flow is to find social clubs. Whether it be the Elks Club, Rotary Club, AmVets, VFWs, Church Groups, Business Groups (check restaurants, coffee shops, grocery stores,  for flyers), local smalltown papers, community websites, sporting leagues. These are all viable options to talk to people who are local that may own, or work for a company that uses asset-based  loans for buying their receivables. Never be afraid to ask, or to get some feelers out when looking for business.

The second topic was Snail Mail, it may be a dying art, but a bulk mailing still shows a personal, physical touch in business. Visit a website like GotPrint? , Overnight Prints , PS Print and get some postcards, flyers, or anything that you want made. It is cheap, easy, and efficient. Never be afraid to send a mailing, it may cost more than an email, but someone has to actually pick up the mailing.

We can continue this on another post, if you have any questions, feel free to ask. I am always open to suggestions about what to write about, or how I am writing.

Until Next Time

Factor ya later.

Cheap Debt Investment

A great article pulled from CEO.com


Although the subject matter below is based on real-world experience, all characters, figures, and settings are fictitious and are not based on the financial situation or strategy of any specific company.
From: CFO, Any U.S. Investment-Grade Company
To: Treasurer
Priority: High
Subject: Anything we can do to take advantage of such low borrowing costs?
From: Treasurer
To: CFO
Priority: High
Subject: Re: Anything we can do to take advantage of such low borrowing costs?
Good Morning, Boss:
I am almost certain that borrowing costs for investment-grade companies have NEVER been lower. I have maxed out the most reliable data sources and cannot find a time when U.S. corporations could issue debt at lower interest rates. Thedriving force behind this low-rate environment is investor demand for both yield and safety.
Investment-grade debt has become the best game in town for investors, as it offers reasonable safety and return at a time when the stock market is one bad headline away from a crash and U.S. Treasuries offer paltry yields. This high demand for quality corporate paper, combined with such low Treasury rates, has greatly compressed corporate credit spreads, pushing all-in bond coupons to unprecedented levels (bond coupons = reference Treasury rate + corporate credit spread).
So, without further delay, I give you five great ways to take advantage of cheap debt:
Capital expenditures. It may seem like the global economy is doomed forever but we should be optimistic. Now is the time to open that new plant, purchase that new fleet, and develop that new product. We can borrow at 2%, 3%, or 5% for 5, 10, or 30 years, respectively. Let’s reinvest in the business in anticipation of better times; when demand returns, we will be thanking ourselves for recognizing and seizing a great opportunity.
Acquisitions. Another great way to invest in our business is via acquisition. Let’s go after those targets we have been eyeballing the past few years. We can justify paying a full valuation with the low hurdle rate set by borrowing costs. While other companies sit on the sidelines and wait for Congress to save the economy, or destroy it, we can be proactive in growing our business.
Pension contributions.Defined-benefit pension plans remain grossly underfunded. Falling discount rates and government regulation have created the perfect storm, inflating pension liabilities so much that pension asset returns have no chance of closing the gap. By issuing low-cost debt and contributing the proceeds to pension assets, we can finally catch up and get our funded status closer to 100%. As an added bonus, a debt-financed pension contribution is both tax deductible and leverage neutral (rating agencies treat unfunded pension liabilities as debt).
Share repurchases. With very low leverage and anxious shareholders, now would be a great time to send a bullish signal by issuing debt to repurchase shares. First, a debt-financed share buyback is accretive to stock price and earnings. Using debt costing 2% after tax to take out equity costing more than 10% (required return + dividend), we can reduce our cost of capital, potentially increasing the value of the company. Also, fewer shares outstanding means an earnings-per-share boost at the end of the year. Second, such a bold move of using debt to repurchase shares sends a very strong message to the market that our shares are undervalued. Third, with looming tax increases on capital gains, now would be a good time to offer shareholders a way out at a 15% capital-gains tax rate. That rate can only go higher next year.
Prepaying future cash dividends. Tax increases on dividends are also looming, with the upcoming expiration of the Bush Tax Cuts at the end of this year. Congress’s failure to act, a high probability, will result in the tax on dividends moving from 15% to more than 40% in some cases.
We can do our shareholders a big financial favor now by borrowing to prepay the dividend for the next two years, helping them avoid a much higher potential tax bill. So instead of paying our shareholders the annual dividend of $2.00 per share, we would pay a $6.00 dividend this year. The incremental $4.00 today would be taxed at 15% and net the shareholder $3.40 per share. Paying the $2.00 dividend the next two years would net the shareholder only $2.40 per share should the dividend tax go up to 40%.
It is important to mention that this environment will not last forever and we will regret not taking advantage of this opportunity someday soon. Interest rates will reverse course, and when they do, the moves will be quick and significant.
The Treasurer
Patrick Guido is vice president and treasurer of publicly held VF Corp., a $10 billion global apparel and footwear company with brands that include The North Face®, Vans®, and Timberland®. Patrick has more than 17 years of experience in corporate finance. He earned an undergraduate degree from Georgetown University and an MBA from Vanderbilt University.
CFO.com (http://s.tt/1r5DS)


Business Line of Credit for Entrepreneurs