Custom Search
|
|
Where To Find Business Credit For Less Than Perfect Credit In 2011
By Marc J. Marin I think it’s fair to say that unless you’re a very well qualified commercial borrower access to traditional credit (term loans, revolving lines of credit, or the like) will remain a distant objective for a “Storied Credit” borrower. Let’s take a quick moment to define a “Storied Credit.” Well, if any of these things have occurred in the past 3 years, consider yourself in the mix! • Operating Losses • Damaged Personal Credit • Negative Net Worth • Start-ups • Highly Leveraged • Declining Sales So, what’s a business to do if credit at the traditional sources (banks) is unavailable? First, take inventory of what assets that you do have available that may garner interest in the Alternative Finance Industry. “What is the alternative finance community you ask?” Let’s take a look at a staple of the American finance industry that’s been steadily funding American businesses for the last 30 years: Asset-Based Lenders (ABL) ABL had more than $480 Billion dollars in loans outstanding to American businesses at the end of 2009* Factoring Companies Factors provided more than $116 Billion in funding to American businesses in 2009* Equipment Lessors In 2009 Lessors provided more than $5.2Billion dollars in equipment financing. So, let’s get back to taking inventory of your assets that may be appealing to these lenders First, those of you who provide goods or services to other businesses on terms may be excellent candidates for ABL or Factors. Accounts Receivables are one of the most highly liquid assets you have on your balance sheet and represent excellent collateral to an ABL or Factor. Given we’re between recovery and a double dip recession cash is king and most businesses clearly recognize that holding on to their working capital gives them flexibility. So, if your one of those businesses that gets to play your clients banker (at no cost) by accommodating their slow payment practices (paying your invoices in 30, 45, 60 or 90 days) immediately liquidating your receivables via ABL or factoring essentially turns your business into a COD operation. Imagine that… instant working capital! Given the love for receivables by ABL’s and Factors there are distinct differences between the products and qualification that warrant a bit of explanation. Credit Facility Size Most ABL’s start to provide credit lines at $1M dollars or more. There are certainly exceptions, but if you don’t carry more than $1M in open commercial accounts receivables, this may be an unlikely avenue. Factoring Companies on the other hand, often provide funding to businesses with as little as $10K per month to companies needing more than $20M per month. General Qualification First, EVERY business nowadays should have proper record keeping in place. If not… wake-up and do yourself a big favor and join the rest of us in the new millennium. Without a profit and loss, balance sheet, accounts receivable aging report and accounts payable reports, it’s unlikely that an ABL will even take your call. A Factoring Company may entertain the opportunity given they have accurate information on your accounts receivables. Second, your time in business. Generally, a majority of ABL’s will only consider a borrower with a minimum of 3 to 5 years time in business. A Factoring Company can provide funding to a start-up or mature operating company. Third, operational compatibility. If your business has established credit policies, a receivables management team, robust product delivery and acceptance policies then ABL might be a good fit. If not, then perhaps you would be a better candidate for a Factoring Company. Factoring Companies, are better suited for offering more bells and whistles for a business owner who does not have the resources of a larger company. Some of these additional benefits are: •Credit Department. A Factoring Company has access to various commercial credit reporting agencies (Dun & Bradstreet, Experian, and various industry specific reporting agencies) and provide this information to their customers at no cost. •Receivables Management. A Factoring Company has teams of qualified specialists to effectively (and professionally) monitor outstanding invoices. •Accurate Reporting. A Factoring Company has very sophisticated software that can provide a multitude of custom reports for their clients. The real benefit is accurate daily reporting of new invoices generated, and posting customers payments. •Customer Service. A good Factoring Company can be a valued team player enhancing customer service. Given a factor has routine interaction with your customer’s accounts payable department they build a RELATIONSHIP with their contact and learn about any problems well before they become an irreconcilable difference. A good factor becomes a transparent arm of your organization. •Flexibility & Speed. A Factoring Company can provide funding in days from initial contact and can often make increases in credit facilities within hours of a request. Given factors have a highly specialized focus on receivables, they have a unique ability to determine risk/reward. Collateral Both ABL’s and Factoring Companies structure their programs around commercial accounts receivables, however ABL’s do have an advantage when it comes to borrowing availability as they also will consider loaning against acceptable inventory. Inventory Businesses that carry marketable inventory need to take stock (no pun intended). If your inventory is highly liquid, it may carry additional value for an ABL therefore allowing you to borrow a percentage against its liquidation value. Inventory and it’s appeal is as unique as the ABL and no two are the same in its value. Its fair to assume that IF your inventory has some legitimate “street” value than you may assume that you may be able to borrow up to 50% of its forced liquidation value. Both ABL’s and Factoring Companies provide financing/funding to those businesses that find themselves in the “Storied Credit’ bucket. Given their unique position and abilities in the credit markets, these two types of vehicles have quietly been a backbone of American Businesses and will continue to provide the necessary day-to-day working capital to those businesses that find themselves unable to obtain traditional financing. Equipment Today, certain lessors have an appetite to provide funding against paid for equipment. The niche is very narrow, but certain equipment that is rare (printing presses, high dollar manufacturing equipment, certain yellow iron) has value to the lessor and may be eligible for a sale-leaseback. These lessors much like ABL’s or Factors are collateral centered. Therefore, if the loan goes bad, they can recover their equipment, auction it and recover their loan. So, where is credit available in 2011? If you’re a well qualified borrower, simply talk to your banker. If you happen to have a “Storied Credit’ then perhaps one of the above options should be considered in more detail. * 2010 Figures have not been released Article Directory: http://www.articledashboard.com Marc J Marin is the Managing Director of Gateway Commercial Finance. Gateway is a nationwide commercial finance company with a specialty in factoring. Marc can be reached at 561-734-2706 or at marc.marin@gatewaycfs.com |
|