Economic Changes Affecting Factoring Loans & Bank Loans

As we all know, the market for factoring and bank loans changed drastically after 2008. Banks had receded to minimal loans, and avoiding making deals with any hair on them. Now that the economic climate is clearing up, banks are changing their once conservative lending policies.

The factoring game has been changing in the last year. Banks are taking riskier deals, and competition in the factoring world is changing. Factors are assuming more risk, and less quality deals. A main point to consider is despite the fight to get a deal through, never discount your due diligence. The quicker one is to the trigger, the faster a problem can arise.

Since we know the mistakes people have made in the past, let's review what we should do, & watch out for:

• Due Diligence - Never cut yourself short when it comes to Due Diligence: There may be a couple of offers on the table, but it is better to be certain about what you are getting yourself into, rather than just adding a new client. preparation is key to avoiding a financing mistake.

• Hastiness -  The prospective client is looking for funding, love the program, but want funding within a week or two. Does that sound fishy? You're darn tooting right it is! If someone is trying to rush you into signing up a client, and financing them; someone is trying to cover up some tracks. Following due diligence is perfect, because this is a step you can not have to worry about if you have taken care of your DD.

• Financials - Well everything is looking good, maybe too good. Make sure that a company does not have any other entities by running a credit report. Check out what is going on behind the scenes, so you can get your arms around the whole picture of the prospect.

• Inflated Projections - Oh you're expecting to from a 100k company to a 100mm company in two quarters? Yeah, let's hop on board with that. Be realistic when analyzing projections for companies. Inflated Revenues and Profit Margins can be misleading, so be weary.

• Parent Companies - If the parent company is based out of the country, where do you think they will be when they go under?

• Outstandings - Be sure to keep a watchful eye on your client's out standings. With more customers comes more responsibility, and you must make sure to not let anything slip through the cracks. Have account executives pay attention to aging reports, and to stay on top of payments from customers. If someone has to rattle some cages to get paid, so be it. At the end of the day, you do not want to be the one devoid of a check.

There are some watchful tips to keep an eye out for. Changing markets means changing economies, you never know when a company will go sideways. The key is to make sure your fail-safes are in place, and that when your money is out the line, it is also retrievable.


In honor of the new Star Trek movie coming out, here's a new one for you Trekkies!

thanks for the image, Bowling in the dark

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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

The Factoring "Lock Box"

As the eyes and ears for a Factoring/Financing company, it is interesting to be involved and surrounded by new terminology, as it is in any industry.

My quandary today was, when involved in a conference call, describing a factoring "lock box" through the financing bank.

Here was the dilemma:
This certain company is working on a contract with us involving buying their accounts receivable. The clients were worried that their customers would know they would be going through a secondary finance company, that is fronting them money.

Here is where I would like to interject. Factoring happens to be one of the oldest and most basic forms of getting financing outside of a bank. It has been used for centuries, if it were not for factoring, there would not be clothing on your back, because that is how the garment industries were started. It is a widely known, and widely used option to small and large business owners. Try to find an industry that is retail or sells a good that does not use some sort of commercial financing or factoring. So in summation to my soap box rant, there should not be any worries about someone knowing that you have a factor buying your receivables.

Back to the story...

As we were in the midst of this conference call, my superior was trying to explain this fraud deterring system called a "lock box." If you are in the industry, you would know that one of the 4 most common forms of fraud that is committed is when a client does not submit, or notify the factoring company of an invoice that the creditor had already purchased.

My superior did an excellent job to avoiding the "F" word, (keep your mind out of the gutter, I mean fraud,) and told them how that it is merely a process to show verification to us and the bank that your checks are coming through and that the money you had promised is not being lost in translation.

To put it shortly, a "lock box," is a system that all checks are placed into, a photo is taken, and so that all parties involved can see what and where money is being handled, and sent to, as a safety precaution for the money that is being loaned.

I would advise doing a google search and finding websites such as:

http://www.investopedia.com/

or

http://money.cnn.com/services/glossary/a.html

to learn some new vocabulary, and find a new word of the day.



Factor ya later!

http://www.lenderscf.com
Asset-Based Loans to Grow By

Talking about, thinking about, and understanding the life of a hybrid Finance/Factoring Company

This blog will let people understand and begin to comprehend the other side of financing and factoring, where you are dealing with real people, and not just a bank.

A little about our company, and the men that started it:

Steve Tarpley and Ken Wilkens have started three successful small businesses over the last 21 years. They founded NEWCAL Industries in 1991, and grew it into one of the top ten office equipment dealers in the nation. In 2008 NEWCAL was acquired by one of the world's largest office equipment manufacturers.

Steve and Ken understand small business - they are intimately familiar with both the joys and challenges of building and managing a successful business. There were many stages along their path to success that required creative ways to fund growth.

Discounting their commercial invoices was one of the tools they utilized while building their businesses. It helped them hit some of their major milestones. They formed Lenders Commercial Finance to help other small and emerging California businesses fund expansions & growth, bringing Cal McGinnis on board to run their day to day operations. Cal has over 30 years of experience working with small businesses; both as a commercial banker and as a trade credit specialist.

You too can take advantage of this important tool to unlock the cash flow tied up in your accounts receivable. Invoice discounting with LCF works much like an accounts receivable “payment-in-kind” bank line of credit. Collections pay down your line and new invoices allow you to draw upon your line. Our goals are to help you obtain the working capital you need, when you need it.

http://www.lenderscf.com