Business Financing Blog

It's Time to Take a  New Look at Asset Based Lending 


There are  numerous misperceptions among CFOs and finance executives when it  pertains to asset-based lending. The  most significant is that asset-based lending is a financing  choice of  last hope - one that only " hopeless" companies that can't qualify for a traditional bank loan or line of credit would  think about.


With the economic  slump and resulting credit crunch of the past few years, though, many companies that might have  secured more traditional forms of bank financing in the past have  now  relied on asset-based lending. And to their surprise, many have  discovered asset-based lending to be a flexible and cost-effective financing  instrument.


What Asset-Based Lending Looks Like


A  common asset-based lending  situation often looks something like this: A business has  stayed alive the recession and financial crisis by aggressively managing receivables and inventory and  putting off replacement  capital spending.  Since the economy is in recovery (albeit a weak one), it needs to rebuild working capital in order to fund new receivables and inventory and fill new orders.


Unfortunately, the business no longer qualifies for traditional bank loans or lines of credit due to high leverage,  weakening collateral and/or  an excessive amount of losses. From the bank's  viewpoint, the business is no longer creditworthy.


Even businesses with strong bank relationships can run afoul of loan covenants if they  go through short-term losses,  at times  requiring banks to  rescind on credit lines or decline credit line increases. A couple of bad quarters doesn't necessarily  signify that a business  finds themselves in trouble, but  at times bankers' hands are tied and they're forced to make financing  moves they might not have a few years ago, before the credit crunch changed the rules.

In  circumstances like this, asset-based lending can  offer  the needed  money to  really help businesses weather the storm. Companies with strong accounts receivable and a  sound base of creditworthy customers  often tend to be  the most ideal candidates for  factoring  funding.


With traditional bank loans, the banker is primarily concerned with the borrower's  forecasted cash flow, which will  supply the funds to repay the loan.  As a result, bankers pay especially close attention to the borrower's balance sheet and income statement in order to gauge future cash flow. Asset-based lenders,  however, are  mostly  worried about the performance of the assets being pledged as collateral, be they machinery, inventory or accounts receivable.


 Therefore  prior to lending, asset-based lenders will  normally have machinery or equipment independently valued by an appraiser. For inventory-backed loans, they typically require regular reports on inventory levels,  together with liquidation valuations of the raw and finished inventory. And for loans  supported by accounts receivable, they  often perform detailed analyses of the eligibility of the collateral based on past due, concentrations and quality of the debtor base. But  as opposed to banks, they  normally do not place tenuous financial covenants on loans (e.g., a maximum debt-to-EBITDA ratio).

 Receivables Credit Lines

Asset-Based Lending: The Nuts and Bolts


Asset-based lending is  effectively an umbrella term that encompasses several different  styles of loans that are secured by the assets of the borrower. The two primary types of asset-based loans are factoring and accounts receivable (A/R) financing.


 Receivable Factoring is the outright purchase of a business' outstanding accounts receivable by a commercial finance company (or factor).  Usually, the factor will advance the business between 70 and 90 percent of the value of the receivable at the time of purchase; the balance, less the factoring fee, is released when the invoice is collected. The  invoice factoring fee typically ranges from 1.5-3 .0 percent,  depending upon such  things as the collection risk and  the number of days the funds are in use.


Under a  contract, the business can usually pick and choose which invoices to sell to the  factoring company.  The moment it  buys an invoice, the factor  handles the receivable until it is paid. The  factoring company will  practically become the business' defacto credit manager and A/R department, "performing credit checks,  assessing credit reports, and mailing and documenting invoices and payments.".


A/R financing,  at the same time, is more like a  conventional bank loan, but with some key differences. While bank loans may be secured by different kinds of collateral including equipment, real estate and/or the personal assets of the business owner, A/R financing is backed  purely by a pledge of the business' outstanding accounts receivable.


Under an A/R financing arrangement, a borrowing base is  developed at each draw, against which the business can borrow. A collateral management fee is charged against the outstanding amount, and when funds are advanced, interest is assessed only on the amount of money actually borrowed.

An invoice typically must be  under 90 days old  to count toward the borrowing base. There are  usually other eligibility covenants  like cross-aged, concentration limits on any one customer, and government or international customers, depending on the lender.  Sometimes, the underlying business (i.e., the end customer) must be  regarded creditworthy by the finance company if this customer  constitutes a majority of the collateral


Industries That use Factoring

  • Automotive Supply
  • Cable Sales/Installers
  • Construction Supply
  • Consulting
  • Distributors
  • Food Service
  • Freight & Trucking
  • Furniture
  • Government Contracts
  • Importers and Exporters
  • International Factoring Services
  • Janitorial Services
  • Machine Shops
  • Maintenance
  • Manufacturing
  • Medical Transcription Services
  • Oil and Gas
  • Printers
  • Security Guards
  • Service Providers
  • Tech
  • Staffing Agencies
  • Wholesalers
  • Beer, Wine and Spirits
  • Bankers
  • And Much More


Invoice factoring services  are provided nationwide including the following states: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho State, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.



Invoice Factoring Company Calculator
This calculator will show you how much you will make by using an invoice factoring company . But, as your about to discover, you will certainly notice the increased cash flow that will occur when you use an invoice factoring company
Enter the amount of your invoice  
Enter the amount of your required advance:
(invoice amount):
Enter the amount of days your customer takes to pay


Trucking Factoring locations

What You Need to Know About Factoring Companies

Exactly how to Enhance Cash Flow Without Borrowing-


Cash flow is one of the main reasons companies fail. At one time or another, every business, even effective ones, have experienced inadequate money flow. Cash flow does not have to be an issue any ever more. Do not be deceived-- banks are not the only places you can get financing. Other options are offered and you do not have to borrow.


Exactly what is  Account Receivable Financing?

One option is called  Account Receivable Financing. Invoice Factoring is the process of selling accounts receivable to an investor rather than waiting to collect the money from the client.


Oh, the Irony ...

 Account Receivable Financing has an ironic distinction: It is the financial backbone of many of America's most effective businesses. Why is this ironic? Since  Account Receivable Financing is not instructed in business colleges, is seldom pointed out in business strategies and is fairly unknown to the bulk of American business people. Yet it is a monetary procedure that frees billions of dollars every year, allowing hundreds of companies to grow and flourish.

 Legal Staffing Financing Receivable Companies


 Account Receivable Financing has been around for thousands of years.  Account Receivable Financing Businesses are financiers who pay cash for the right to get the future payments on your invoices.

An unsettled receivable or invoice has value. It is a financial obligation your consumer has actually agreed pay in the near future.


Factoring Principals--

Although factoring offers solely with business-to-business transactions, a large percentage of the retail business utilizes a factoring principal. MasterCard, Visa, and American Express all make use of a type of factoring in their retail deals. Utilizing the purest definition of the word, these big consumer finance business are really simply large Invoice Factoring Companies of consumer paper.


Think about it: You purchase at Sears and charge it to your MasterCard. The store makes money nearly quickly, even though you do not make payment until you are ready. For this service, the charge card business charges Sears a fee (typical costs vary from 2 to four percent of the sale).


The Conveniences

Invoice Factoring can provide many advantages to cash-hungry business. Instead of waiting  30, 60, 90 days or longer for payment on a product that has already been delivered, a company can factor (sell) its receivables for cash at a small price cut off the dooar value of the invoice.


Payroll, marketing efforts, and working capital are simply a few of the company requirements that can be satisfied withimmediate cash. Receivable Loan Financing supplies the ways for a manufacturer to renew inventory and make even more items to offer: There is no longer a need to wait for earlier sales to be paid.  Receivable Loan Financing is not just a money management tool for producers: Virtually any type business can gain from Invoice Factoring.


Typically, a business that extends credit will have 10 to 20 percent of its yearly sales tied up in invoices at any given time. Think for a minute about how much is bound in 60 days' worth of invoices: You can not pay the power bill or this week's payroll with a customer's invoice, however you can offer that invoice for the money to meet those commitments.


 Account Receivable Financing is a fast and easy procedure. The factor buys the invoice at a discount rate, normally a couple of portion points less than the face value of the invoice.





Funding A New Business By Factoring Invoices


For brand-new business, the capability to get a bank loan is virtually nil. The vast bulk of banks will not even consider lending money to a business that hasn't been in company at least 3-5 years. They consider it too much of a risk.


Business that are brand brand-new likewise have actually not developed up sufficient credit history, and so the capability to determine their credit worthiness is just not possible. Banks, specifically in today's financial climate, are simply not prepared to provide money to business with little or no credit history. Fortunately, there are other alternatives offered for companies just beginning.


Invoice factoring is a practical alternative and can be extremely advantageous to business aiming to grow.


Factoring invoices in order to raise money is a lot easier then attempting to obtain a bank loan. There are no intensive, financial audits. Businesses with below typical credit can qualify due to the fact that the aspect is more worried about the credit history of the company's customers than they have to do with the business's credit.


Another wonderful advantage is that factoring allows companies to money certain projects without a loan. As an outcome, when a company is in a position to get a loan, they will be more likely to qualify for it because they don't have a surplus of existing debt. Below are few of these advantages more in depth:.


Even business with below typical credit can certify for|get} factoring: Among the greatest hurdles for companies attempting to obtain a bank loan is their credit. Banks generally only {want work with and loan cash to business that have clean credit records. For that reason, companies that have a couple of imperfections might be instantly excluded from consideration even if they are strong in other areas.


Factoring business consider the credit worthiness of a company's customers because that is who they will be collecting from. They are not as worried about the credit history of the company offering the invoices.


Factoring is not a loan; factoring includes a business selling their invoices or invoices. This is not a loan by any means. This makes the business appear stronger on their balance sheets due to the fact that they are not stuck in debt.


A business can offer as lots of or as few invoices as they such as.


Factoring enables for a quick money mixture: Picture if your business required money in 8-10 days. The likelihood of your business having the ability to secure a brand-new bank loan in this time period would be small. In reality, it would probably never ever take place. However, getting money in this quantity of time may be possible with factoring. Factoring can assist your business get the cash it requires in as low as Two Days. It is much easier and needs far less work than efforts of securing bank financing.



 Five  Excellent Reasons A Company  Ought to Factor

One of the most  obvious  advantages of  using factoring companies is the  capability for a company to  swiftly raise  money when a traditional loan is unattainable, or when the  business is experiencing rapid  development and   buy  products, pay  suppliers and cover  expenditures.


 Nevertheless, this is not the only advantage. There are a  substantial number of reasons why companies  must  think about accounts receivable factoring.



1. Factoring is an  very fast  means for  business to raise money:

A factoring  offer can be  performed in only a  couple of days. A company can have  money in a  really short  quantity of time. This can be extremely  useful for a  business that is desperate for  money or that is  planning to quickly expand their operations.


It can take a substantial  quantity of time   a loan and then hearing back from them on  whether they are  ready to provide a  business with the  cash needed. A  company  could not have that amount of time. The  income of their  company  might  depend upon getting money  quick.



2. Using an accounts receivable factoring company  reduces the collections  procedure: Businesses  in some cases have to wait weeks or even months  prior to they are  receive cash for services rendered.  This is often the case for trucking companies. Trucking factoring programs help with this. Throughout this time, they might be  money  inadequate and  could not have the funds  readily available to grow their  companies or even  meet their  existing operational  expenditures.


3. Using factoring companies  enables  business to  generate money without  handling new  financial obligations:  Financial obligations can be an  reliable tool to build and sustain a business.  Nonetheless, it can  likewise be  dangerous, especially for  brand-new businesses. Using a factoring company allows companies to  get badly needed capital without  depending on an expensive loan.


4. Using invoice factoring companies can be a  wonderful  alternative for companies having  difficulties qualifying a bank loan: Getting a  company loan has always been challenging. Today, it is even tougher because banks are  hanging on tighter than ever to their  cash.


If a  business  has actually not been in business  extremely long  or  has actually had  issues  paying back loans in the past, the  chance they will  have the ability to receive a bank loan is  very small. In this case, a good  option would be for a company to  utilize factoring services.


5. Account Receivable Factoring can  assist companies that have no collection  division or an understaffed one: For small businesses that  do not have a collection  division or  appropriate  workers, an invoice factoring company can  offer a much  necessary service. Factoring can  offer them with  exactly what they  require for money to  make it through and/or  broaden by advancing  cash for their invoices  then collecting them. The seller will  certainly  need to  spend for these services,  however it is well worth it for many businesses.




The  difficulties of  financing a small business

The  thought that  choices  accessible for  medium-sized business owners  fall to choices between traditional financing, alternative financing , or venture capital is the wrong way to  take a look at  financing  medium-sized business initiatives. Even if the business  depends  only on debt financing to fuel its capital  requirements, business owners should look at the financing options  offered to them as a 'portfolio' of investment  possibilities.


One size does not fit all-- two or three sizes don't fit all either.


 The majority of the Main Street businesses we  refer to here will  incite growth and fund working capital with borrowed money or cash flow.  The good thing is, there are a  ton of  possibilities  accessible.  Regrettably, many small business owners look at the  possibilities as an either/or choice to be made. I think it  makes good sense to  check out financing  solutions that are appropriate to different situations and how they might work together to help small business owners  discover the capital they need.


 As an example, a good relationship with a community banker is very important to the long-term health of a small business. That's not to say an SBA loan or other traditional loan is  the most effective and only  solution to the financing  requirements of the local dry cleaner or restaurant. Yes, interest rates are lower on a traditional fixed-term loan, but how  swiftly a small business owner can  get access to capital  could be  difficult with a term loan that takes weeks or months to fund if the small business owner  wants the cash  immediately.


And, the  major obstacle is that many Main Street business owners don't have the credit, time in business, or revenues to  comply with traditional loan criteria. This is  even more so  agonizing for early or idea-phase startups. No history, no product, and no revenues  generally mean no loan.


For a business owner who doesn't match the underwriting  demands of a traditional lender,  invoice factoring company products can  serve to help establish credit while allowing the borrower to fill his or her short-term capital  demands.  Invoice Factoring Companies have less  rigid lending  guidelines than does the local bank-- but that comes with higher interest rates.  Due to  a lot higher interest rates, small business owners should  review repayment terms of a few months  as opposed to a couple of years. Although  factoring company financing  may be a powerful  resource when used correctly, it can also be very costly if misused.


Many small business owners who do qualify for low-interest term loans still turn to  receivable factoring  techniques as a short-term bridge to a traditional term loan while they wait for a traditional loan  to become funded. If the business owner is trying to take advantage of an opportunity and can't wait for an SBA or other traditional loan to close, the  extra interest they pay over the two or three months they wait is well worth almost immediate access to capital offered by  receivable factoring .

 Factoring Receivables With Recourse


When  checking out the many financing  choices  offered for small business owners,  a few of the questions that should be asked include:.

1. What is the range of terms  offered?

2. Are there any upfront costs?

3. What is the minimum credit score  needed  in order to get the loan?

4.  Precisely what are the underwriting requirements in addition to my credit score?

5. How  rapidly can the loan be funded?

6.  Will I  need to have the cash now, or can I wait?

7. Do I have the  option to make regular and  prompt payments?

A small business owner should treat his or her credit score like a precious asset. Sometimes short-term financial  selections have long-term  implications. For example; a business owner that had a good business idea but no collateral, no income, and no credit was  annoyed and upset that lenders weren't  fascinated by his idea and weren't  gushing themselves to  offer him money. He wasn't  considering bootstrapping because it would cause him to scale back his growth plans. It wasn't what he  wished to hear, but bootstrapping his idea was the only real option available and the approach I suggested. Many  unbelievably successful companies were started by an entrepreneur who bootstrapped his way to the top.


What's  the most ideal approach for your Main Street business? There are certainly more than one or even a  mix of many  selections-- once size does not fit all.

More Factoring Articles


 The Cash Flow Solution Of The Future Is  Right here Today-Accounts Receivable Factoring

It's  obvious that  invoice factoring  rates will be  greater than loan interest  required by a bank.  Though keep in mind that you  just cannot  actually compare  invoice discounting (a short-term debt instrument) with a bank loan (a long-term note) because they are two completely  alternative  types of  financing.

The key to  determining if you can  have the means to factor is not to look  simply at the bottom-line  cost, but to also  look at how your company  could  boost its profits through factoring.  Consider unearned income and  forfeited opportunities  because of your  scarcity of cash flow.  In addition, consider the savings you  might experience with  invoice discounting. You can  do away with late payment fees and take advantage of early payment or  quantity purchasing  concessions.  And also,  think of  whether factoring will allow you to  reduce your accounting  team by  decreasing the amount of overtime used on collections and credit checks.

It is rare that companies decide not to factor  considering that they could not afford to.  In fact,  most of the times, companies decide to factor because they  just can't afford NOT to.



 Invoice Factoring-
How To Avoid Cash Flow Hazards

Compared with a bank loan, an invoice discounting arrangement is a  individualized  contract which takes into account the  particular  requirements of your  business.  This is  really different from the typical banking  documentation used to secure a loan,  in which is a  typical agreement  according to the bank's  requirements.

In addition,  plenty of  account receivable factoring companies do not have maximum  restrictions.  When you have  pretty good, creditworthy clients and there are  absolutely no legal  barriers (like liens, lawsuits or judgments),  factoring companies will fund all the  receivables you can  bring in. This  stands out  significantly with a  usual bank situation,  wherein  just about every single loan  has a maximum limit .

A  brand-new client  is given  first approval in  under 24 hours, and  funds in seven to ten days. By contrast, a loan application to a bank can take as long as 30 to 60 days to cycle through to the loan review committee, with funding to  come next in yet another 30 to 45 days.

 Along with  swift  resolution time, factoring does not  restrict  all your  firm's assets (just the receivables) or incur debt.  Company ownership is not  disturbed, keeping your business as liquid as  practical, while  greatly enhancing your balance sheet and  total financial position. In contrast, banks will,  in many cases, not only file a lien against (or hold as collateral)  most of your  business assets, but also against your personal property (including your house, your  land, and your lawn mower ).

With  invoice factoring, no  extra debt is  accumulated and the credit rating of your  company  continues to be  safeguarded.  Quite often a  receivable financing arrangement can  in fact  improve a company's chances of restructuring long-term debt. Since factoring  delivers an infusion of  funds, the  firm  is able to pay its bills on time and clear up other  remaining credit  commitments.  Simply speaking, this  cash in hand may  enable a  firm to "get its act together"  in a manner that encourages banks and other financing  bodies to look more  approvingly on either  reorganizing debt or financing new property or construction. It's  certainly not  rare for a  really good client to " move onto" to bank  lending after a period of "financial adjustment" while  receivable factoring.

 Whilst the  benefits of  invoice discounting over borrowing money are  considerable,  the majority of businesses do not have the luxury of  same access to both methods of financing. Banks, with their regulatory controls and inherent inflexibility, do not make it  very easy for most  firms to approach them for financing. Factoring,  alternatively, is the purchase of an asset and,  therefore, is not regulated by state of federal agencies.

 Our people  often hear  business enterprise owners  grumble about their banks, and the  feeling is  constantly the same: the only  folks who can qualify for a loan are those who don't  need to have one!

The First Rules of the Costs of  Using a factoring company

It costs money. It costs more than bank money. Does it cost  much more than investor money? Depends upon how much equity you  give up to your investor, and  a lot of will  need the lion's  stake.  Still let's stick with the costs of  using a factoring company.

The Second Rule of the Costs of  Invoice factoring

It  ought to be viewed as a transactional cost rather than interest charged for a  time period, for a  lot of reasons.


 First off, factors  need to charge more for the money we advance because the  span of time the money is outstanding is so  little, usually 30 to 45 days. To charge bank rates on transactions  in this short duration benefits only the client; the  invoice factoring companies makes no  cash, and  in truth, would lose his shirt.

In the  last analysis, you as a businessperson, must ask yourself these two questions:.

1. Will the cash advanced  enable me to make  even more (one way or another) than the fees charged?

2.  Can  a factoring company  enable me to stay in  operation?

It's the answer to these that should  actually make your  verdict for you.

 Furthermore note that, for the factors that we're familiar with, fees are negotiable. They are a  pliable (within reason) part of the  contract, but  keep in mind, as  mentioned, the  arrangement must make sense for everyone.

We have been known to negotiate with  customers that have  very special  demands or situations, such as:  pretty low profit margins, high monthly sales with (shall we say) less-than-creditworthy customers, commitments of  ensured monthly volume,  capacity for  significant  expansion with the industry, etc.  With regard to  these kinds of clients,  factoring companies have been known to  settle for a high-volume discount schedule.


This is  nothing but one  good example of  just how the schedules  could be manipulated to  satisfy all  involved-- but please  be aware of, we factors are more than willing to  review, discuss, talk about,  think of, and  look at  each of the  opportunities, but they  must make sense, i.e., you've got to respect our right to earn a  decent fee for the services  provided.

The rule is simple:  the factoring companies  discuss a fee schedule that we  trust will  benefit us both.  When, during the course of these negotiations, you  believe that you  need to have (or are entitled to-- whatever) a lower rate than we're willing to  give, or vice versa, we're both free to walk away from the table.

Before Proceeding, Feel  Great About Your  Receivable Financing Company.

Keep in mind that as your  factoring company is  examining you and your  customers, you should be  checking into your  factoring company.  Seek references and  very carefully  look at any  deals they may ask you to sign.  Very good  factoring firms  are present  to assist you  locate solutions to your cash flow  concerns  whilst  offering  quality service and charging fair fees. As you  go over the  documents, ask questions! A  pretty good,  reputable  receivable factoring company will appreciate the time that you are taking to  comprehend the process and talk with you to answer any questions you have.

 Filling out the Application.

 Some of the most  vital  records that you will be asked to  affix your signature on is a Purchase and Sale Agreement,  likewise  described as a P&S Agreement. Although a factor's due diligence process is more "client-friendly" than the bank loan process, it  could be very  really expensive for the  receivable factoring companies.