Not long ago I was contacted by a company that had been unsuccessful in acquiring a new Operating Line of Credit from its bank in Toronto, Canada. The company is in the Import Business.

Their customers are all across Canada and they have plans to expand into the US market and due to growing orders they had been maxing out their Operating Line of Credit consistently. Their bank had then capped at $50,000 and would not increase it.

As you may know, the typical terms when dealing with China are 30% payment with the order and the 70% balance before they are shipped.

The company was selling on average about $125,000 worth of goods per month, and with the Accounts Receivable sitting at about 45 days to collect, the $50,000 Operating Line of Credit was of little good to them. The average open Invoices were $200,000.

In their industry, it is expected that the goods that are ordered by their customers are to be shipped within 7 days which required the Importer to carry inventory as their source of goods was in China.

As you can understand, the owners tied up their personal assets to get personal loans to aid in the cash flow crunch so they would have sufficient inventory to operate.

The solution to this problem was to set up a new Operating Line of Credit for the company using the Invoices for delivered goods as security in an Accounts Receivable Factoring facility.

Now the company has access to $170,000 for their operations which allowed the owners of the company to pay off the personal loans they had taken for operations, pay off the bank Line of Credit they had and still have sufficient funds to carry the required inventory to service their customers.

To make it even better, the Operating Line of Credit they have now will grow with their outstanding Receivables. So as their sales grow, so does their Line of Credit.

In another bold move to assist the economy the US Government released its intention to start Factoring US Auto suppliers invoices to the automotive sector.

As seen in today’s NY Times (03/19/2009):

DETROIT ” The Obama administration moved on Thursday to stabilize the American auto industry by creating a $5 billion fund to support troubled parts suppliers.

The program will provide supply companies with much-needed access to liquidity to assist them in meeting payrolls and covering their expenses, while giving the domestic auto companies reliable access to the parts they need, the Treasury announcement said.

So what does this mean for the industry? Until the details are rolled out is hard to say specifically, but the announcement to get into the Accounts Receivable Factoring business is the latest installment of how far the US Government will go to get the economy back on track.

I had predicted that Accounts Receivable Factoring is going to be a major financing method of our economy revival and this proves how accurate that is.

For those of you that are not familiar with Accounts Receivable Factoring it is essentially a Line of Credit for Businesses that use the Invoices that are outstanding as security for the advances received by the company which generated the Invoices.

In an average Accounts Receivable Factoring facility, the company that is financing their receivables will be eligible to receive between 80% and 90% of the invoice face value. One the end customer pays they will receive the balance of the funds less the finance fee,

Most Factoring facilities will charge from 2% to 4% per month depending on the industry, credit rating of the customer and the advance rate,

A counterpart to the Accounts Receivable Financing is Purchase Order Finance. This is essentially Factoring or borrowing against future orders. There are strict guidelines to how this works, but if you sell a product that you purchase in finished condition and then sell it to a third party you may be a candidate for Purchase Order Finance.

This option works best for distributors but Accounts Receivable Factoring can work for companies in nearly any sector. If your company needs financing like this, the best option is to speak to a Professional Commercial Finance Broker because they will be up on all the trends and latest programs available through the various lender channels.

Best of all, in most cases the services of a Professional Commercial Finance Broker will not cost you a fee because the Broker will be compensated by the lender for them preparing the deal for them so it really is in your best interest.

No one has to tell a business owner that getting access to much needed cash flow is a difficult task today. It matter not if you are in Canada or the United States, if you have gone to the bank to inquire about financing, there is a good chance you were turned away. For this reason many companies turned to Angel Investors for that all important cash injection.

Be aware that Angel Investors typically look for a ROI of 5 ” 10 times their investment in under 5 years. This is accomplished by looking at many aspects including the salvage value of your company. They will create an exit strategy to recover the funds from your company in the predetermined time frame regardless of consequences to your company.

Angel Investors have now increased their threshold for their ROI to a minimum of 10 times to as much as 50 times their investment because of the failure rate and the length of time that the investor will be tied into the company. When you consider the bigger picture, the effective return on investment for the Professional Angel Investor is usually around 20% to 30%.

Because of this high return on investment, Angel Financing is very expensive, but the lesser costing funds such as banks and credit unions are rarely available for new business start-ups. This is because the traditional financiers have a high threshold for accepting young companies for Business Loans.

So you are declined at the bank and you can not afford Angel Investors now what?

It is irrelevant if you are in Canada or the United States, the story is the same but there are options. This is a real life deal that I just completed recently. It is a Distribution company in Alberta Canada that had a unique product that it wanted to market throughout North America. The owner went to the usual banking institutions and was denied the loan. He then spoke to a few Angel Investors who gave him proposals which he did ponder over but shortly after continued to search for options. When I spoke with him I suggested a combination Accounts Receivable Factoring and Purchase Order Finance facility.

At the time when we had initially spoken, he had just shipped out nearly 70% of his stock and had an order to fill the following week that would exhaust his inventory. At this point he would have to wait until the customers paid for the orders prior to ordering more inventory. Biggest problem with that is that he had other orders to fill, but no stock and no money to get more stock.

In a matter of 7 days after the application was returned to me he was ready to fund and now has access to the much needed cash he needs to grow his business.

In short, if your company has been turned down by the banks and credit unions plus there is no comfort for you in dealing with an Angel Investor due to their terms, be sure to check with a Professional Commercial Finance Broker so they can put together the proper financing for your business.

Ever worked on getting that big customer for months, chasing after then, long drives or flights to see them so you can win them over with your service and determination? Then have the worst thing that can happen in a situation like that you get the order and now you have to figure out how you can possibly fill it because the order larger than your total Operating Line of Credit.

That did happen to a Telecommunication Company in New York State, USA. In one order, their sales had increased to over 3 times the size of their entire Line of Credit at their bank. The owner went to the bank to get it increased so they could take on the order but the bank refused to increase their limit.

With this order, the customer had to have terms on the invoice of 30 days, and to make it worse the supplier required payment prior to shipping. The time to deliver the goods from the time it leaves the supplier dock is 10 days. In this case we have a 10 day delivery time plus a 30 day collection time from the customer, so we have a 40 time span of where we do not have the financial capacity to handle the order. So what now? Decline the order?

The owner of the company did speak with some Accounts Receivable Factoring Companies but they were not able to help out due to the time lag between the timing of the advance requirement and the delivery of the goods to the customer. They could not Factor the Accounts Receivable until the product was delivered, and they could not deliver the product until they received an advance to pay for the product.

The owner of the Company was then referred to a Commercial Finance Brokerage who immediately assembled a Purchase Order Finance and Accounts Receivable Factoring facility. Now the order was able to be processed and now the door is open for future orders from and large buyers.

The bad four letter word ” Taxes. No one ever likes taxes, never have and never will, and why should we like taxes? Unfortunately, as much as we all hate them, they are necessary and no two people agree on how the format should be set up to be fair.

One of the biggest hurdles politicians deal with are tax generation and government spending. In times like we are in with increased government spending, this has to mean increased taxes, but who will be saddled with the majority of the burden?

Those that own businesses will want the consumer to carry more of the tax burden as the current status of many companies is not stable to support additional taxes, and the people who still do have employment do not want the added taxes as many people have taken pay cuts plus inflation has increased, so they are not in a position to carry additional tax burdens either.

While the individual taxation does affect everyone, business owners will more often see it that they are in business and are already faced with many obstacles in todays market with wages, property taxes, payroll taxes and everything else that they are paying out monthly and if they have anything left for themselves, they would like to be able to pay their own bills.

Because of the general attitude of the general public, feeling that individuals that own businesses are rich and well off, people think that companies have lots of expendable cash. This, we all know now, is very far from the truthso who will pay the taxes needed to cover the debt we are incurring with Obama?

After all is said and done and the taxes are collected, now, how will these funds be spent to best serve the taxpayers in general? Do we want to support bailouts for major corporations and banks or do we want to assist small to medium sized businesses? How about covering healthcare costs for those without insurance? Foreign aid or civil projects?

So which is it to you? Are you More Concerned with Where the Tax Dollars Come from or Where they go?

Not long ago I was contacted by a company that had been unsuccessful in acquiring a new Operating Line of Credit from its bank in Toronto, Canada. The company is in the Import Business.

The company imports goods from China and has been experiencing strong growth over the last year which lead them to outgrow their current Operations Financing and their current Financial Institution would not increase their limit of $50K.

As you may know, the typical terms when dealing with China are 30% payment with the order and the 70% balance before they are shipped.

The company was selling on average about $125,000 worth of goods per month, and with the Accounts Receivable sitting at about 45 days to collect, the $50,000 Operating Line of Credit was of little good to them. The average open Invoices were $200,000.

The company had to carry inventory since their customers expected orders to be shipped within 1 week of receipt and the fact the main supplier was in China meant they had to have sufficient stock to carry them for a months sales at any given time.

As you can understand, the owners tied up their personal assets to get personal loans to aid in the cash flow crunch so they would have sufficient inventory to operate.

The cash flow crunch was cured by my office setting up a new Business Line of Credit for the company using Accounts Receivable Factoring.

With an advance rate of 85% against the $200,000 open invoices, the company now has $170,000 available to them which allowed them to order sufficient inventory to support their growth, pay off the bank Line of Credit and pay off the personal loans they had taken to support the business.

Because the new Funding Line was based on outstanding sales, the Line increased as the sales increased. So as sales grew, so did the availability of funds.

Ever dreamed of that bug sales? You know the one I am talking about, the one that would put your company on the map in your industry as a player. Be careful for what you wish for. Many companies have wished for that very thing until it actually happens. What would you do if you received that order and it was for more than you entire last 2 yeas of sales in one Purchase Order?

This has happened to other companies and it can happen to you to. After you get over the initial rush of the big order and you think of all the cash that will be coming in, then you think How can I possibly pull this order off? You will need to hire staff, buy equipment, pay for materials and you do not have the money for that. That is exactly what happened to a company in New York State USA. The owner of the company just figured he would go to the bank and they would lend him the money he needed, but the bank declined him.

The customer in this case had to have 30 day terms on the invoice. To make it worse, the suppliers needed to be paid before they would ship the goods. Big problem. If you look at a 10 day delivery time on top of the 30 day sale terms, he would have 40 long days that needs to be gapped. With the though of having to refuse the order in your mind, consider this. What if there were a way to finance this gap in funding that would not involve major financial statements, appraisals and other types of documents?

The owner of the company did speak with some Accounts Receivable Factoring Companies but they were not able to help out due to the time lag between the timing of the advance requirement and the delivery of the goods to the customer. They could not Factor the Accounts Receivable until the product was delivered, and they could not deliver the product until they received an advance to pay for the product.

The owner of the company spoke with a Professional Commercial Finance Broker who knew exactly what to do. He put together a Purchase Order Finance facility with a lender that specialized in the product that the company was selling. In a very short period of time, the financing was approved and the transaction was completed without an issue, and now the company was in the position to take any size order without the fear of not being able to afford to take the business.

Imagine this: You are the Ops Manager at a Trucking company doing about $1.0 million dollars in sales per month, you have kept your receivables under 60days for the most part, you are making your financial obligations and you get a registered letter from your bank calling your Line of Credit.

This is a real event for a Texas based Freight Carrier recently. After a brief panic attack, the CEO called his bank and the account manager told him that due to revisions of the banks risk structures are laid out, he has no choice but to pull the financing. He has 2 weeks from the receipt of the letter to repay the loan of $1.0 million. Upon dealing with a Professional Commercial Finance Broker, not only was the loan paid off at the bank on time, but the trucking company had a new Line of Credit of $1.75 million now.

This is a popular scenario today with the tightening restrictions on lending today. Even with the announcement of Presidents Obamas grand plans, banks are still pulling the plug on companies that are making it, forcing some to close down and put people out of work.

Most companies do not need more debt; they usually have enough of that. What they do need is cash flow. If this sounds similar to your situation, please, speak to a Commercial Finance Broker. They are trained professionals whose career is based on keeping on top of the new finance options coming out and knowing which lender does what deals the best.

It really does not matter if you are in Canada or United States; it is the same story all over. Commercial Lenders do vary in regards to the products they carry and the strengths they posses in the various industries. Just because a lender is good in Commercial Equipment Loans does not mean they can handle you Line of Credit in your trucking company. Commercial Finance Brokers have the experience to know who does what the best.

Commercial Finance Brokers are up to date with the latest changes and options available. Many Commercial Finance Brokers can handle Financing options ranging from Accounts Receivable Factoring, Purchase Order Finance, Export Finance, Commercial Equipment Loans or Commercial Mortgage.

The weekend is here and the President has been busy all week.

AIG execs received their bonuses, and then lost them; new rules being developed for bailout takers, more funds available for small and medium sized business and the US Government has entered the Accounts Receivable Factoring Industry.

Our President has really been busy this week and I will be very interested to see what the survey say about the confidence level in North America now that all this has been happening.

The President has done more in the last week than I have seem most elected officials do in an entire term of office. I am sure there will be more to come and quickly because the work that Mr. Obama has put into motion has just started and there is no end in sight to what has been going on in the US politics recently.

I have not met one person that is not impressed by the results of the AIG bonus issue (since I do not personally know any AIG execs). Most people are impressed by President Obamas strength and determination to get the economy back on track.

In regards to the additional funding for small and medium sized business, this has been a long time coming. I must say it is not a surprise to see this developing but most people in the Commercial Finance Industry are very pleased to see it. The economy need stimulation and the best place to do this is not with the major corporations but rather the small to medium sized companies as these are the employers of most people in North America.

The US Government getting into Accounts Receivable Factoring did come as a shocker thoughnever saw that coming. I have always said that the economy is going to see a major increase in the use of Accounts Receivable Factoring and Purchase Order Financing but for the government to handling the invoices from the parts suppliers to the automotive makerwow. That being said, not all companies will have access to the government funding however, but the use and acceptance of the government in using the Accounts Receivable Factoring method will make other companies use this type of financing and will help diffuse the stigma sometimes associated with Factoring.

Can not wait to see what happens next week

Getting a Business loan at your bank is a terribly difficult task these days regardless if you are in Canada or the United States. Because of this many businesses feel they need to seek the operating cash they need from Angel Investors. But are you ready to turn your business over to an Angel Investor?

Angel Investors look at deals differently than banks, or most other lenders for that matter. Their focus is to net between 5 and 10 times their initial investment in a period not to exceed 5 years. They do this by carefully plotting their exit strategy to recover their funds within the specific time period they define which can take the form of public offerings of stock, takeover or liquidating the assets of the company. What ever it takes.

Due to the current market conditions in our economy Angel Investors are looking for higher than a 10 times ROI. This is because of all the business failures versus the successful ones. When you consider the failure rate in the Angel Investor portfolio, the effective ROI for a successful Angel Investor is about 20% to 30%.

Since the ROI for and Angel Investment is so high but the lower costing financing at the credit union and banks are not available, especially for business start-ups it makes being in business even more difficult. The reason the banks and credit unions are not interested in financing start-ups is because they lack the history and asset backing required by their underwriting guidelines.

So you are declined at the bank and you can not afford Angel Investors now what?

Regardless if your company is in the United States or Canada, there are options. The following is a real life situation that I was involved in to avert an Angel Investor situation. There is a company in Alberta Canada that possesses a unique product that he was planning to market across North America. He went to the usual places to inquire about financing for his business. After the banks turned him away, he spoke to a few Angel Investors. After considering their proposals he continued his search for financing when I presented him with an option called Accounts Receivable Factoring and Purchase Order Finance.

When I had initially spoken to the owner of the company, he had shipped out one large order and was about to ship out his second large order which was going to wipe out his entire inventory and he would have to wait to receive payment from the customers before he could replenish his stock but he had several additional orders to be filled and he had no way to fill them without cash.

After I received the application from him it was about a week when he received his first advance on his new Line of Credit using Accounts Receivable Factoring and now he has the cash to make his business run more smoothly.

In short, if your company has been turned down by the banks and credit unions plus there is no comfort for you in dealing with an Angel Investor due to their terms, be sure to check with a Professional Commercial Finance Broker so they can put together the proper financing for your business.