Business Brokers create less need for a Sales Force

We pride ourselves in the bonds we grow with our clients, and the brokers that represent us with prospects. A key to a successful business relationship is friendly, courteous, and professional communication. In the financing industry there are deals that work, and there are deals that do not work, it is plain and simple.

Brokers are the lifeblood of our business. With constant communication and information exchanges, you can extend your salesforce exponentially. They may not be on our payroll, but they still have the broker fees that make up for not being connected to a financing business. These business relationships are what make business exciting. Every day there are new, and exciting deals that are pushed forward by the bridge builders. Working in the industry you get to see how businesses are developed, built, thrive, fail, stumble, and recover. It really opens up your eyes, and gives a valuable lesson in the business realm.

That being said, check out our friend Tom Dewell's blog, Alternative Commercial Finance , to learn more about his side of the business, learn some tips, and see another side of the coin in the finance world.

Lenders Commercial Finance: Your Answer to Factoring Loans

The Weight of a Personal Guarantee

The weight of a personal guarantee, what does it hold anymore?

My Associates and I sat pondering this today, after a potential client called in. His dilemma was simple; he needed about $300k of Accounts Receivable Financing for his business, and conveniently, he called Lenders Commercial Finance.

We have been discussing doing asset-based lending with companies like this recently. These are the new trend of web-based businesses, that are doing either advertising, marketing, SEO, or what seems to be a limitless list of options. Our dilemma is this: We have a company that has a Pro Forma that is almost unbelievable, or is it? If you can simply find build a market share for someone on the internet, or gets traffic directed to adds, and continue to expand the horizons of that business, it is believable.

The problem with some financiers today, is that they are on the uphill side of the technology curve. Their experience was on pen and paper, or a typewriter, and they cannot wrap their arms around a concept of a webpage making a huge amount of money. Fortunately, we at Lenders Commercial Finance, are not on that learning side of the curve. We have a very informative and educated staff, where we share ideas, create ideas, and sift through other's ideas, to make profitable business decisions.

Our big point at hand in this article, is the fact that we are discussing ideas of financing online businesses, and with this idea, we need things like a personal guarantee to back up our decision to finance them. So if you are looking for a chunk of financing, with a somewhat "exponentially profitable" business, why can you not offer us a personal guarantee?

It reminds me of the days when a handshake sealed a deal over cocktails and a meal. Now paperwork, credit checks, and a cadre of other pre-requisites are needed to have anything be finalized. If you are blazing trails for an entrepreneurial business, there shouldn't be a reason that you, the person on this venture, wouldn't back it whole-heartedly.

What does a personal guarantee stand for anymore? Does it say, yes, I am a businessman, and my life and soul is this business, or does it say: sure I'll agree to whatever you would like, as long as you just hand me that check?

As Bob Dylan said, Times They are a Changin'

The Tumbling Twinkie

An article I found that discusses the epic downfall of the Twinkie.

Here's to a little bit of fat America going away!


This Story was written By John Carney | CNBC 

When Hostess Brands announced that it would close up its operations, the forces most responsible for that decisions were two hedge funds that control hundreds of millions of the debt of Hostess have finally decided that they won't squeeze any more filling into the Twinkie.

The funds, Silver Point and Monarch, are what are known as distressed debt investors. They buy the debt of troubled companies-usually at steep discounts. Some consider them white knights who are willing to take make risky investments in companies on the verge of failure. Others say they are "vulture funds."

Only Silver Point and Monarch could have kept Hostess out of liquidation and kept the Twinkie bakery ovens firing. But they were, ultimately, unable to reach a deal with the unions that represents the workers who make and deliver products like Twinkies, Wonderbread and Ding Dongs. Without large union concessions-what some would say, total union capitulation-the hedge funds decided Hostess would have to die.

This is not the first time Hostess Brands has entered bankruptcy. Weighed down by an balance sheet heavy with debt and pension obligations, costly labor rules, and declining sales, the company sought bankruptcy protection under Chapter 11 in 2004.

After nearly five years in bankruptcy, Hostess emerged in 2009 under the control of a private equity firm called Ripplewood Holdings, which invested $130 million of new capital in the company. The keys to coming out of the bankruptcy the first time around were concessions by the two groups most responsible for Hostess falling back into bankruptcy just 3 years late: the unions and lenders that owned secured company debt nominally worth around $450 million.

In the deal that allowed Hostess to come out of bankruptcy, the unions agreed to concessions that would save the company around $110 million a year in labor costs. The lenders, led by the hedge funds Silver Point and Monarch, agreed to provide a new secured loan of $360 million, forgive half the existing debt, and exchange the rest of that debt for a payment-in-kind loan.

(Read More:NOOOOOOOO! Say It Ain't So! Twinkies Maker to Liquidate, Lay Off 18,500)

It's worth mentioning that we don't know how much of a loss-if anything-Silver Point and Monarch took on the loans by agreeing to reduce the amount outstanding. As David Kaplan pointed out in hisextensively detailed article in the August 13th issue of Fortune, the amounts the hedge funds paid for the debt are not in the public record. Distressed debt funds-critics call them vulture funds-typically pay far less than face value when buying the debt of troubled companies.

This wasn't enough to save the company.

The company's sales declined and attempts to roll-out new products more in line with changing consumer tastes flopped. Ripplewood put tens of millions more into the company in the form of new equity and subordinated debt. Silver Point and Monarch put in another $30 million and then, after the company filed for Chapter 11 again in January of this year, another $75 million.

What happened next was just a mess. The CEO quit. The unions described the pay of the new CEO as "looting." Acrimonious would be a very mild term to describe relations between management and the unionized workers. One person familiar with the matter described it as "all-out war." The place to turn for the details of this is, again, David Kaplan's Fortune article.

Ripplewood basically fell out of the picture during this period. Its equity investment was worthless, and it's subordinated debt was deeply underwater. It just stopped showing up at negotiations with the unions, according to Kaplan.

The folks left at the negotiating table with the unions were Silver Point and Monarch.

Here's how Kaplan put the situation as of last summer:

What the hedge funds want is some degree of capitulation from a union whose members will otherwise lose thousands of jobs in liquidation. If the hedge funds don't get it, they've concluded, the company isn't worth saving. Without the hedge funds' blessing, no Hostess turnaround is possible. Right now, according to sources with knowledge of Hostess's debt structure, Silver Point and Monarch each hold Hostess obligations with a market value of between $50 million and $100 million. Those sources also say each hedge fund probably paid somewhere between $125 million and $175 million for that debt. So even with losses to date, both hedge funds have ample skin in the game -- skin they'd like to get out of the game sooner rather than later. Of course, if the hedge funds again forgive sizable debt, they'll probably want sizable equity in return this time.

Finally, there are the woebegone Teamsters. They have plenty of skin as well -- and feel as if they've been fleeced out of almost $100 million from Hostess after the company "temporarily" ceased making union pension contributions last August. That move by Hostess was a breach of its collective-bargaining agreement with the unions. The Teamsters' leadership has fulminated to its membership about the hedge funds in particular. "The financial folks make a living of feeding off distressed companies," Hall says. "They lose sight of the fact that there are real families with livelihoods at stake." At local unions across the country, the hedgies have become the devil incarnate.

Now we know how this story ends. The Teamsters agreed in September to a deal with reduced pay and benefits. But the Bakery Workers union rejected the deal and went on strike. Hostess warned that if the strike continued it would not be able to stay in business. But the strike went on. And now Hostess is out of business.

The hedge funds concluded that Hostess isn't worth saving. The unions either bet the hedge funds would blink before putting the company into liquidation or decided that it was better to sacrifice the jobs of Hostess workers than give in to demands for further pension concessions.

(Read More: Not So Yummy: 15 Major Fast Food Failures)

Although it now appears that Hostess is done, this is not the end of the story. The brands Hostess owns retain value. Someone will likely produce Twinkies again. The plants and workers are also valuable and will likely find bidders. Silver Point and Monarch-as well as the other secured creditors-will realize some value for their investment in the company, although certainly far less than they had hoped. (But, since we don't know how much they spent on the debt, we may never know whether they gained or lost on the deal.)

And, of course, we'll be in for a long bout of recriminations as everyone involved points fingers at everyone else. The truth of the matter may just be that Hostess was a failed enterprise that just could not be saved.

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