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Alternative and Non-Bank Financing – Don’t Be Afraid!

The good news is that, despite the tight credit environment, there are many alternative and non-bank financing options available to companies that need a cash infusion, whether it’s to beef up working capital or help facilitate growth.

However, the bad news is that business owners often shy away from non-bank financing because they don’t understand it. Most owners simply rely on their banker for financial information and many bankers (not surprisingly) have only limited experience with options beyond those offered by the bank.

To help ease some of the fear that owners often have of alternative financing, here is a description of the most common types of non-bank financing. There are many struggling businesses out there today that could benefit from one of these alternative financing options:

Full-Service Factoring: If a business has financial challenges, full-service factoring is a good solution. The business sells its outstanding accounts receivable on an ongoing basis to a commercial finance company (also referred to as a factoring company) at a discount-typically between 2-4 percent-and then the factoring company manages the receivable until it is paid. It is a great alternative when a traditional line of credit is simply not available. There are a number of variables to a program, including full recourse, non-recourse, notification and non-notification.

Spot Factoring: Here, a business can sell just one of its invoices to a factoring company without any commitment to minimum volumes or terms. It sounds like a good solution but it should be used sparingly. Spot factoring is typically more expensive than full-service factoring (in the 5-8 percent discount range) and usually requires extensive controls. In most cases, it does not solve the underlying lack of working capital issue.

Accounts Receivable (A/R) Financing: A/R financing is an ideal solution for companies that are not yet bankable but have good financial statements and need more money than a traditional lender will provide. The business must submit all of its invoices through to the A/R finance company and pay a collateral management fee of about 1-2 percent to have them professionally managed. A borrowing base is calculated daily and when funds are requested an interest rate of Prime plus 1 to 5 points is applied. If and when the company becomes bankable, it is a fairly easytransition to a traditional bank line of credit.

Asset-Based Lending (ABL): This is a facility secured by all the assets of a company, including A/R, equipment, real estate and inventory. It’s a good alternative for companies with the right mix of assets and a need for at least $1 million. The business continues to manage and collect its own receivables but submits an aging report each month to the ABL company, which will review and periodically audit the reports. Fees and interest make this product more expensive than traditional bank financing, but in many cases it provides access to more capital. In the right situation, this can be a very fair trade-off.

Purchase Order (PO) Financing: Ideal for a business that has a purchase order(s) but lacks the supplier credit needed to fill it. The business must be able to demonstrate a history of completing orders, and the account debtor placing the order must be financially strong. In most cases, a PO finance company requires the involvement of a factor or asset-based lender in the transaction. PO financing is a high-risk kind of financing, so the costs are usually very high and the due diligence required is quite intense.

The message I am trying to convey is simply that financially challenged business owners should not be afraid to consider alternative or non-bank financing options. It’s a fairly simple matter to learn what they are, how much they cost and how they work. Alternative financing is a much better option than facing the challenges of growth or turnaround alone. It is a known fact that the vast majority of business failures are due to a lack of working capital-but it doesn’t have to be that way.

With a better understanding of these different types of non-bank financing, you’ll be in a better position to decide if they might be the answer to your financing challenges.

The Key To Working Capital Financing – Asset Based Lenders

Wondering how your competition seems to have all the working capital financing they need and you don’t – the key to that answer might just be asset based lenders and the asset based lines of credit they offer to Canadian businesses such as yours.

Let’s examine how this relatively new and unique method of business financing can totally alter your business financing success.

The acronym for this type of financing is A B L; simply speaking its daily cash flow provide against your current, and sometimes now so current assets. What do we mean by that? Simply that this facility allows you to margin your receivables, inventory, and in most cases, should you choose, fixed assets and real estate. You are probably saying to yourself that you could arrange financing on your own re those fixed assets and real estate – but we are talking about using those assets as collateral for your daily revolving line of credit. So you aren’t borrowing, you are not bringing debt on to your balance sheet, you are just leveraging your ‘ assets ‘ (that’s the ‘A’ in ABL!) for daily cash flow and working capital.

And why are we claiming that this type of working capital financing just might be your key to business success. Simply because you have probably found it has been challenging to get the full amount of business credit you need. In some cases you might have discovered its been a challenge to get business lines of credit of any manner.

So if your competitors are using this type of financing today, who exactly is eligible for it, and is your firm a candidate. The answer is simply that if your firm has a combination of 250k in working capital assets you are immediately eligible for asset based lines of credit. We would add that firms with smaller asset sizes can still monetize those receivables via invoice financing or discounting, but that’s not our key focus for today’s information exchange.

So now you now the offering are out there. But why should you consider it. Simply because your firm might be in one of a number of special situations – that includes issues such as your need for increased daily operating cash, you wish to merge with or finance an acquisition, you have been unable to obtain inventory financing elsewhere, you are growing to quickly for traditional Canadian chartered banking financing, etc! We are pretty sure you get the picture now!

The benefits to this type of business financing must by now be pretty obvious. It’s all about access to working capital financing and cash flow that you couldn’t access before. Assets that couldn’t be financed are now financeable, and inventory financing, previously limited or unavailable now looms on your growth horizon.

Who are these asset based lenders, and what is the cost of this financing? We’ll leave that one for another day, but if you want to investigate asset based lines of credit for your firm ( remember, your competitor probably already has ) then speak to a trusted, credible, and experienced Canadian business financing advisor who will assist you with identifying benefits and the best solution for your current strained needs in business finance.

My Childhood in 1000 words or less

Immediately after reading the assignment, I let out a sigh and an “oh boy”. I wasn’t sure if talking about my childhood without including my mother would be possible and it’s not.

My childhood began in Texas, went into Kansas for a short period and finally ended in Oklahoma.

My mother gave birth to 7 but the older 2 siblings didn’t survive outside of the womb. I was the 7th and last child born to migrant workers in Houston, TX but I have no memories of Houston because my family relocated to San Antonio.

My earliest memories are set in governmental assistance apartments known as the “projects”. A lot of duplex apartments and children running through the yards, playing marbles on the sidewalk. I recall an older lady would come once a week, and now I’m assuming it was on a Sunday but it could have been a Saturday. She would come with pictures on an easel and read bible stories to any kid that cared to sit down long enough.

Around age 7 we moved into an actual real house. It was near a river and I remember being so small it used to feel like we would walk through a forest to get to it. When I returned as an adult, it was a small brush that seemed like a forest.

The house was in a dangerous neighborhood, we weren’t allowed to walk to school alone. One night my oldest sister went to the gas station with our younger brother and a group of boys assaulted my sister and my brother was able to run to our house to get my dad and my uncle. I remember they jumped in the truck and a couple of my dads friends jumped in the truck bed as it was speeding off and they returned with my sister. Her Red Wing boots had been stolen but she was unharmed, thankfully.

My parents worked a lot so I actually don’t have a lot of memories with them. My father was a mechanic and often smelled of sweat and oil and his hands were always dirty. My mother always worked in restaurants. I know we would eat dinner together but it wasn’t a regular thing because I hardly recall it. My oldest sister actually took care of the kids and house. My sister loved to read and she had a routine of kicking all the kids out of the house while she cleaned and then she would read while eating Doritos. We could only play on our block but it was often full of kids. I learned to ride a bike by myself when I was 9 years old because I wanted to ride with the other kids.

At the age of 10 my parents divorced and my uncle, who lived in Kansas convinced my mom to join him and his family and so we moved and I had no idea I wouldn’t see my dad again for 12 years.

Kansas wasn’t bad. We lived in a trailer park and it wasn’t dangerous so we actually had freedom to roam around the park and play. My oldest sister was of age and stayed in San Antonio but I still had my other sister and we would play outside making mud pies and looking at insects.

After about a year in Kansas my mother remarried and we moved to the Oklahoma panhandle. By this time there were 3 kids left with my mom and we did not get along with my stepdad. There was even a time we lived in two separate apartments because he didn’t like us and we didn’t like him. He was borderline abusive. Only physically abusive one time towards me, his method of abuse was mentally and emotionally. My mother was a devout Christian by now and she met him in church so she believed in her heart and mind that he was providing structure and was the authoritarian us children needed. I have learned to forgive her for that. My other 2 siblings moved back with my father and I was left alone. After a few years of marriage my mother received a phone call. The lady on the other line was looking for her brother in law. Which happened to be my stepfather…

Yup. He was married to someone else and my mother had no idea.

At this time I was 13 years old and my mother needed to leave the marriage and that meant she needed to leave the home and so she left back to Kansas and left me with a family friend in Oklahoma.

It would only be for a little while, she returned the next year and I moved back in with her. At the age of 14 I was smoking pot and going to high school parties. My mother was reconstructing her life, she was figuring out who she was, I’m assuming, and I was neglected. I got involved with an older guy and because I always looked older, no one questioned it. Not until I was caught with a stolen vehicle and ended up in Juvenile Detention. By then I think my mom knew I needed attention and so then she started spoiling me. This was in the late 90’s, when checkbooks were still around. She added me to her checking account and bought me a car. I was the coolest 10th grader and you couldn’t tell me otherwise.