Small Business Funding Alternatives

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The first method of finance that led to the emergence of the cash flow industry was owner financing.

In an owner-financed sale, a real estate seller accepts a promissory note as a portion of the purchase price. The note is then secured by placing a mortgage on the real estate being sold.  Homeowners and commercial real estate investors in this country have used owner financing as a method of buying property since the early 1900’s.  However, it wasn’t until much later that it became popular.

During the high interest rate periods of the Seventies and Eighties, home buyers found it difficult to obtain affordable financing from banks. Interest rates and inflation had skyrocketed to double digits, making it almost impossible for people to sell their real estate. If a real estate seller was willing to take a down payment from the buyer and hold a mortgage note for the remaining balance, the transaction was much more feasible for the buyer–and certainly more convenient.

By the time inflation drifted back down, thousands of individuals were holding private mortgage notes. Individual investors and investment companies recognized a tremendous profit opportunity in those notes, and they began to buy them directly from sellers.

These privately held mortgage notes have turned into a commonplace investment nationwide. Today, privately held mortgage notes are even securitized and traded on Wall Street.

The second method of finance that impacted the development of the industry is factoring, also called the sale of a business’ accounts receivables.

Factoring has a long, rich tradition dating back some 4,000 years to Mesopotamia (which some think of as the cradle of civilization).  In addition to many other things, the Mesopotamians first developed writing, put structure into business code and government regulation, and came up with the idea of factoring.  Mesopotamia and its citizens eventually became extinct but the concept of factoring definitely did not.  Indeed, almost every civilization which valued commerce has practiced some form of factoring, including the Romans.

The first documented use of factoring occurred in the American colonies before the revolution. With the advent of the Industrial Revolution, factoring became more focused on the issue of credit, although the basic premise remained the same. By assisting clients in determining the creditworthiness of their customers and setting credit limits, factors could actually guarantee payment for approved customers.

Prior to the 1930’s, factoring in this country occurred primarily in the textile and garment industries, as the industries were direct descendants of the colonial economy that used factoring so specifically. After the war years, factors saw the potential to bring factoring to other forms of invoice-based businesses and the expansion began.

Today, factors exist in all shapes and sizes: as divisions of large financial institutions or, in larger numbers, as individually owned and operated entreprenurial endeavors.

Many of these private factors sprung up in record numbers as interest rates rose to new heights in the 60’s and 70’s. This trend intensified in the 80’s, primarily due to the increasing impact of interest rates and changes in the banking industry. With banks becoming too expensive and too inflexible due to heavy regulation, the small businessperson was forced to find other sources of financing for expansion and growth. As more and more banks stopped being a funding source for the small businessperson, factoring has increasingly become an option used by the small business owner.

This year alone thousands of businesses will sell billions of dollars in accounts receivable, and they are doing it for profit, growth, and survival.

Prior to the 1980’s, factoring was used primarily in the garment, textile and furniture industries and was only otherwise available to “big business”. So, with the banking industry upheaval of the 80’s and the rise of the independent broker network in the 90’s factoring of accounts receivable has taken its place as an acknowledged financial tool that can assist many businesses - both large and small.

Clearly, the concept of selling an income stream has been a part of the financial services industry for “many” years. However, until the last decade, cash flow transactions were essentially limited to private mortgages and invoices.

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Since the formalization of the cash flow industry, approximately 14 years ago, its growth has steadily increased. 

Cash flow brokers are entering new markets and discovering new ways to provide cash flow services to businesses and individuals.  Also, new income streams are discovered and added to the never-finished list of pieces of paper which can be sold in the cash flow industry.

Many who start out as cash flow brokers go on to become Master Brokers or funding sources mentoring other brokers just getting started in the industry and/or purchasing income streams with their own funds.

But, the most significant reasons for continued growth of this industry include:

1.  The emergence of the cash flow broker (like myself) which helps to spread the word about the availability of these funding options to businesses previously unaware of same;

2.  The economy is increasingly operating based on debt (unfortunately);

3.  Cash Flow income streams provide an investment alternative for investors seeking large yields on their money;

4.  The cash flow industry is gaining visibility in the financial services marketplace.  In fact, Wells Fargo Bank recently purchased one of the leading government contract funders in this industry.

So, let’s look at these reasons in a little more depth.

1.  Emergence (and development) of the career of cash flow specialist/consultant. 

During the 1980’s, private mortgage investors operated in their own exclusive sphere — focusing on mortgage notes and, generally, not buying other income streams. They also usually bought notes only in their own geographic areas.

Additionally, private mortgage investors typically worked directly with private mortgage note sellers. On occasion, though, an investor would come across a note too large to buy and would broker it to one of the larger investment companies.

But, generally, for the most part, transactions were between buyers and sellers directly.

Over time, the income potential in brokering private mortgage notes was realized and the broker network grew. The availability of brokers, in turn, provided more investment opportunities for investors.

It was a winning situation for everyone. Rather than tracking down notes directly, investors could put up investment capital and rely on brokers to bring them transactions. In addition, investors could do business nationwide rather than just in their local neighborhoods. Today, most major private mortgage investors rely on brokers to bring them transactions.

The same process occurring in the private mortgage business occurred simultaneously in the factoring industry.

Traditionally, factoring had been provided by major factoring companies, often subsidiaries of large banks. It was available only to companies with annual sales in excess of $100 million a year (”big business). For smaller companies, factoring services were out of reach.

Soon, a small group of companies recognized an opportunity in providing factoring services to small and mid-size companies and emerged as factors, targeting businesses with annual sales below $100 million. Their activities, too, were focused on the geographic areas in which they functioned. And in most cases factors dealt directly with businesses, not with brokers.

Eventually, some companies began to examine factoring brokerage as a career possibility. As was the case with private mortgage brokering, training programs helped to popularize the factoring broker as an occupational category.

Today, many factoring companies which in the past dealt directly with businesses now depend exclusively — or at least significantly — on brokers (as with private mortgage investors).

Brokers specializing in private mortgages and brokers specializing in factoring were essentially doing the same thing — brokering future payments — which resulted in the foundation for what we now call the cash flow industry.

When the first cash flow brokers started looking for individuals and businesses with a need or desire for cash, they came across other types of income streams that offered similar opportunities for brokering. As a result, brokers started actively seeking new income streams to broker with funding sources  ready to purchase them.  At last count, there were some 60 income streams.

2.  The economy is increasingly operating based on debt.

A USA Today article on 8/27/05 entitled, “Experts warn that Heavy Debt Threatens American Economy, “ states:

“You owe $145,000. And the bill is rising every day.

That’s how much it would cost every American man, woman and child to pay the tab for the long-term promises the U.S. government has made to creditors, retirees, veterans and the poor.

And it’s not even taking into account credit card bills, mortgages — all the debt we’ve racked up personally. Savings? The average American puts away barely $1 of every $100 earned.

It’s not a rosy picture, I know. 

But, the cash flow industry — and/or its investors – is doing its part in helping to stimulate the economy by helping small businesses to leverage their “liquid assets” rather than acquiring “debt” and thereby self-financing their own growth and expansion. 

And this is no small contribution to the economy, as we know that the total of small business is larger than big business and is the backbone of this country.

3.  Cash Flow income streams provide an investment alternative for investors seeking large yields on their money and buying future income streams is not only a very profitable form of investing but also relatively secure.

When investors buy future income streams, they do not pay face value and this equates to a high yield on their investment. 

Also, with this type of investment they know, in advance, exactly what that yield will be (provided the payments come in on time).  If they have thoroughly researched the income stream they are purchasing, they will be fully aware of whether there is the possibility of default and will have factored this into the offering price for the income stream.

Investors who either fear a decline in the stock market or dislike the daily management of their investments can earn significant returns in the cash flow industry with very little management time.

4.  The cash flow industry is gaining “visibility” in the financial services marketplace.  As noted in an earlier post, the cash flow consulting profession is growing and with the increasing number of successful cash flow professionals, comes increased visibility to the industry. 

Cash flow professionals are out spreading the word one on one, giving presentations to business groups, networking with business owners and government so that the business community is beginning to see that the cash flow industry is, indeed, an extra “Resource” for the cash-hungry new and growing businesses. 

I am regularly allowed to have booths in the Resource section of business fairs.  In one, right after Katrina, I am directly across from the SBA and right in the middle of the Resource area along with the La. Economic Development, Manufacturer’s Extension Partnership of Louisiana and other resource booths.

Many of the referrals I get come from bankers and others located in these Resource areas.  It is a win/win situation for them to have someone to refer customers to who they have not been able to help.   The ultimate objective for all in the Resource category is to help the small business survive and if that means referring a client to another Resource then that is the best thing to do.  Previously, the options available in the cash flow industry were unavailable to the little guy but that is different now and I and other cash flow consultants like me are out there spreading the word.

With increased visibility, more businesses and consumers are becoming educated about their cash flow options. And the more people learn about their options, the more people will begin looking for brokers and buyers to turn their income streams into cash!

Be Safe!  Debra

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Privately held income streams, like the one created by your daughter’s payments in the previous post, can be bought and sold in the secondary marketplace.  In this marketplace, individuals and businesses can get cash NOW for their “future” income streams. 

So, looking at our example where you financed the home purchase for your daughter, could you get cash in exchange for the future payments owed you at your local bank?  Most probably not.  But in the secondary marketplace, many investors would give you cash today in exchange for the right to collect the payments over time.

Another example would be, you delievered $10,000 worth of merchandise to a customer along with an invoice requesting payment within 30 days.  Although the customer owes you money within 30 days, that money is not yet available to pay your bills.

Now suppose a third party offtered to give you $9,000 in cash today in exchange for your $10,000 invoice.  Would you take it?  You would if you needed cash today in order to pay employees and buy supplies for new orders.  It would make it possible for you to stay in business and keep your customers happy.

Transactions like these occur every day.  Individuals and businesses collect future payments or income streams sooner, rather than later, by selling them to a third party. 

The third party pays cash today for the right to receive payments over time. The third parties that purchase these income streams can be either an individual investor or an investment company.  Either way, they are willing to pay cash today for the right to receive future payments.  And, since they are giving up cash today, they will need to earn a rate of return on this money which is the discounted amount they pay for the income streams they purchase. 

Just about any income stream, whether it is a mortgage to be paid over 20 years or an invoice to be paid in 30 days (factoring of accounts receivable), can be sold to a funding source in the cash flow industry/secondary market.

I am passionate about the Cash Flow Industry/Secondary Market because it helps SMALL businesses (or the little guy) by bringing financial tools that have been available only to BIG business in the past down to small business’ level. And since I am definitely a champion of the little guy or underdog…I like that!

Most of us have heard of or are familiar with home mortgages being bought and sold so that over a 30-year period a homeowner’s mortgage company may change hands 2 or 3 times. Well, this is an example of “paper” being bought and sold in the secondary market and previously it has been in vast amounts of dollars such as transactions with mortgages (usually in portfolios).

But, now, with the development of the cash flow industry during the last 14 years or so, similar options are there for small business now. So much so that invoices as low as $50 (for a limousine service) can be factored. Now “that” is bringing it down to the level of the little guy!

So, two primary themes of the cash flow industry (which is trading paper in the secondary market), in my opinion, are:

1. Help for “small business” or the “underdog” by
2. “Leveraging” of available assets.

These are two themes that will be interspersed throughout this blog as they are in my life, business and beliefs (i.e. I am always hoping, helping and pulling for the little guy and believe that leveraging of their assets is a solid tool for the Little guy to use to his/her advantage).

Stay Well, Debra, YCFC

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in the Cash Flow Industry is an option of which many people, unfortunately, are not aware.  The funding tools of the Cash Flow Industry have been available to “big” business for years but are only recently becoming available and known to the small business owner and I am excited to be able to be a part of that!

But what exactly is the Cash Flow Industry?

We can break it down and start by defining cash flow — which is the flow of cash through a business or household (i.e. depositing a paycheck and/or payment into your/the business account and paying the bills). 

In business, cash flow coming in is usually referred to as revenue and going out is referred to as expenses.  For an individual or household, cash flow is income coming in the front door in time to pay bills out the back door. 

But, it all boils down to money coming in and then going out equals cash flow.  And, every household and business manages cash flow on a daily basis.

So that, the Cash Flow Industry is a marketplace which helps businesses and individuals manage their daily cash flow needs.  Its primary goal is to get cash into the hands of those who want or need it by leveraging liquid assets they may have through the buying and selling of future “income streams” they may own.

An income stream is a “future” paymnent or series of payments (i.e. a financial obligation or debt that one party owes to another).  The financial obligation is reduced to writing in a legal document.  It is the “payment(s)” that make up the income stream being bought and sold but it is also commonly referred to as the debt instrument or cash flow instrument. 

I like to say it is any piece of paper which has a dollar value attached to it and some of the ones which are most easily recognizable to many are lottery winnings, contracts, invoices, leases and mortgages.

There are many more, however — at least 60 cash flow “income streams” (debt instruments) being bought and sold today in the cash flow industry – most of which are privately held (i.e. owed to a private individual or business rather than to a bank or other financial institution). 

For example, if you sold your home to your daughter and financed it for her, your daughter would then make her monthly mortgage payment to you rather than to a bank.  And, in this example, the income stream created by your daughter to you is “privately” held, because you are a private individual, not a bank or mortgage company.

We’ll discuss the 60 different income streams in much more detail later on but for the time being to perhaps help you remember some of them you might realize that they are basically business-based, collateral-based, insurance-based, contingency-based, government-based or consumer-based income streams.

I always welcome comments!

Thanks for stopping by; Debra, YCFC

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Equipment Leasing – an Often Over-Looked Financial Tool for the Cash-Strapped, Small Business Owner…………….by Debra Maples

Cash Flow or preserving your Working Capital is the name of the game (wouldn’t you agree?) when it comes to “staying” in business!

Then, tell me WHY so many small business owners put out mega bucks on equipment and use up their valuable “cash” assets? Sure, you “own” it, but where does that get you in the long run?

Let’s explore some facts and benefits of equipment leasing vs. outright purchase of the equipment (usually via bank or other loan),

FACT: A lease is a simple agreement between the owner of equipment (Lessor) and the end-user (Lessee) providing for the exclusive use of the equipment for a monthly fee. Because leasing provides more benefits than ownership does, it is one more “financial” tool for the toolbox of the small business owner.

FACT: Leasing is the most widely used method of equipment financing in the United States, accounting for approximately one-third of all capital investments.

FACT: 80% of all small businesses lease some or all of their equipment.

BENEFITS OF EQUIPMENT LEASING VS. OUTRIGHT PURCHASE:

Aids in the Growth of Your Business

A growing business is apt to face the dilemma of limited cash flow and the need to add equipment. Leasing can solve that problem with the addition of that equipment with almost no capital expenditure.

Ease of Application and Fast Processing

Application only required for smaller leases (usually up to $75,000) with no financials or tax returns and processing is usually within days.

100% Financing Conserves Working Capital

All equipment costs, installation, delivery, etc, can usually be included in the lease. You choose the equipment from the vendor you wish and retain all warranties and guarantees. Usually all that is required is a couple of monthly payments up front.

Avoids Loan Restrictions

Leasing leaves your other credit lines intact.  Normally, your banker will not reduce your credit lines when you lease; they may do so when you borrow.  Leasing preserves your access to cash!  Instead of a liability on your financial statement, the lease can be shown as a footnote, maintaining healthy financial ratios.  Keep your cash and credit lines in reserve for when you need them for inventory, advertising, payroll, taxes, or to take advantage of supplier discounts and other opportunities.

Capital Management Tool

Would you pay your employees’ wages several years in advance?  Of course not!

Paying cash for equipment that will provide many years of service is like paying an employee for years of service in advance! 

Leasing equipment is comparable to hiring employees.  Pay for your equipment as it produces income and provides benefits and service to you.

Often the monthly payment will be less than the profits generated by the leased equipment.  And you have the option to own the equipment at lease end (usually for 10% of its original cost).

Provides More Options

Equipment obsolescence can interfere with your continuing profitability.  Upgrades, modernization, and technological advances all become easier with leasing.  When change occurs, you’ll be glad you leased your equipment!

May Provide Tax Savings

Depending on several variables, leasing can provide tax benefits to you. Recent changes in tax laws have been made since President Bush has been in office, however, so that the tax advantages may not be as good as in previous years. You should speak to your accountant about this.

Overcomes Budget Restrictions

Leasing is an operating expense and not a capital item with predictable monthly payments.  This allows you to budget your equipment costs up to 5 years in advance and avoid fluctuations common to “prime plus” loans.  A fixed-rate leasing program enables you to make regular, equal payments that actually get cheaper using tomorrow’s dollars.

Should Every Business Lease

Every business should at least consider the benefits of leasing in the context of tax savings, capital management, and the leveraging and preservation of working capital and cash flow. The more you know about leasing, the better decision you can make.

Our leasing experts will be happy to go over every aspect of a lease and compare it to comparable alternatives to help you make the best and most-informed decision for your particular business’ needs.

So, why don’t you consider adding equipment leasing, along with the other financial tools we’ve been discussing recently, into your small business’ financial toolbox and see how it can help your cash flow better in your business?!

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Retail Merchants – Frustrated with your lack of business funding options? By Debra Maples

 

What’s a busy retail merchant to do when it needs extra working capital?

 

“Oh, NO!!! - Not the gauntlet,” you think – taking your valuable time (and patience) to deal with the “paperwork” required by traditional sources!

 

Correct! You got it! Not the Guantlet! And let me tell you why!

 

Today – there is a better, easier, more reliable, convenient and FAST way to obtain lines of business credit for merchants!

 

“HOW?” you say; tell me more!

 

Okay, I will — since it is my goal to help educate small business owners as to all the alternative financial tools available to them today that were not previously available – that’s just what I intend to do. So, listen up because this is exciting stuff!

 

Any vendor or merchant who accepts credit/debit cards can easily get an advance from their “future” credit and/or debit card receipts!

 

Remember, the folks I work with help a business leverage its “liquid assets” so that no “debt” is created and added to its balance sheet. In fact, many businesses use the options we offer to retire “loans” and “strengthen” their balance sheet!

 

So, those little bitty chunks of paper — those future credit or debit card receipts — are pieces of paper with a dollar value attached to them, right? And, what can you do with them in the asset-based lending industry? You got it! You can “leverage” them! They are a “liquid asset” of the merchant’s business.

 

Using this non-traditional, debt-free funding tool, we have helped businesses by providing money for:

• Equipment and inventory purchases

• Cash flow needs for seasonal businesses

• Renovating or remodeling your business

• Advertising

 

So, “Give me some details,” you say!

 

How does it work?

 

The funding source will literally purchase your “future” Visa/MC receipts in the form of a cash advance.

Generally:

• You are advanced from $1,500 up to $250,000 based on your previous average monthly sales receipts

• A small fee is deducted from your ongoing “future” Visa/MC receipts (the amount or percentage is determined by the business owner and the funder)

• There are no fixed payments and no fixed re-payment term

 

What do you need to qualify?

Generally:

• Your business must accept credit/debit cards as a form of payment

• You need to be processing a minimum of $1,700.00 and above a month

• You can qualify even with poor personal or business credit

 

What paperwork is needed?

Generally:

• Completed and signed simple application

• 3 or more month’s credit card statements

• Bank statement

 

How long does it take?

Generally:

• Once your completed application has been received and processed (which can sometimes be done in as little as 1 day’s time), it takes 5-7 days for the funds to be forwarded and any subsequent fundings can be done in one-half the time.

 

So, as an example, a merchant whose business averages $20,000 a month in credit/debit card receivables, can get an advance of approximately $30,000 against its “future” receipts within 5 to 7 days after completion of the application and approval process.

 

These are easy lines of credit for merchants to establish and maintain – even for years – so that any extraordinary working capital needs they might encounter can be filled almost automatically without any disruption to a merchant’s already busy schedule.

 

The vast majority of the millions of new jobs created in the US in the last 15 years were created by the hundreds of thousands of small merchants and entrepreneurs that have fueled America’s economic growth. And, until now, small business’ funding and other needs have gone unaddressed.

 

As relates to funding, however, innovative private investors have seen this need of small business and have stepped in to lend a hand and help make the small merchant’s business grow and prosper while saving time and headaches.

 

These funders provide the funds a small business needs to realize its full potential and make its dreams become a reality and I, for one, am happy and excited to be a part of it!

 

Please call or contact me for a free, no-obligation business cash flow consultation at 225-247-4370 or dmaples@yourcashflowconnection.com. More details on other non-traditional funding tools can be found at my website, http://www.yourcashflowconnection.com.

 

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We have plenty of business, but what we really need is cash to run our business!”

Have you ever heard a frustrated business owner utter this remark? Or thought it yourself?

What would you say if I told you I could help you or that other frustrated business owner get that cash to keep that cash flowing in your business — keep your business up and going and running smoothly so that you can do what you do best — run your business?

Okay….got your attention?

Well, let me introduce you to a fast-growing source of cash for growth-oriented and cash-hungry small businesses — factoring of accounts receivable.

“So, what exactly IS factoring of accounts receivable?” you ask.

Factoring is the conversion of a company’s commercial accounts receivable into immediate cash by selling those accounts at a discount. With factoring you can get 70 to 80% of an invoice’s face value wire transferred into your account within 24 to 48 hours of the invoice being issued and approved. Pretty, useful, huh?

Better yet - factoring is not a loan! With factoring there is no interest to pay, nor principal to repay. No liability will appear on a company’s balance sheet due to its factoring. A company simply sells one of its assets (accounts receivable) for an agreed-upon “fee” to obtain a more liquid asset (cash) thus self-financing it’s own growth with debt-free funding. It’s equivalent to when you sell your vehicle (an asset) to someone — the two of you agree upon a price and the transaction is done!

Since factoring is not a “loan,” funding is not based on a company’s ability to repay the amount advanced. Rather, funding is based on the ability of the company’s customers to pay what is owed the company for the purchase of the company’s goods or services.

Unlike traditional funding sources which require all the assets a business has available for collateral on a credit line, factoring is, in essence, a Receivables-Based Credit Line, which needs no other collateral. It is available to be drawn on when and as needed. In fact, a business can conceivably have a credit line with its bank with its other assets as collateral and a second credit line with a factoring company with the receivables ONLY as collateral! Interesting…?

With factoring, you can have cash on demand to meet seasonal demands, accommodate new and larger clients who may demand longer terms or use up any excess working capital you have on hand. Factoring, in essence, gives you the option of offering terms to your customers thereby helping you to increase your customer base.

Prior to the 1980’s, factoring was used primarily in the garment, textile and furniture industries and was only otherwise available to “big business”. At that time (as with many things), the terms and prices were much different than what they are today.

Due to the increased competition and visibility of this very viable financial tool, however, these have changed for the better. The terms and prices we see today make factoring a quick and viable alternative funding tool for small businesses nationwide so that they, too, can take advantage of this proven, debt-free and flexible method to effectively multiply working capital.

SOME HIGHLIGHTS/ADVANTAGES TO FACTORING:

• No financials required — MUCH less paperwork than traditional sources (oftentimes this can be done by fax or email and no personal “appearance” is required by the business owner);

• Quick account setup - usually 5 business days (sometimes faster);

• Usually can have 70 to 80% of invoice amount wire transferred to your account within 48 hours after approved;

• No long-term contracts, you factor as much or little as needed;

 

Why don’t YOU make this a year of growth and increased profits by using this financial tool to enhance your business!

Please contact me for a free, no-obligation consultation at 225-247-4370 or dmaples@yourcashflowconnection.com. Please also see additional information on my website: www.yourcashflowconnection.com.

 

 

 

 

 

 

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The number one reason for business failure in the U.S. today is lack of working capital!

     Businesses need money to grow. A business cannot survive just because it has a better product, an exclusive market or the best method of distribution. The catalyst required for progress is money!

     But where does a business go when the banks say no?

 

Asset-Based Lending - What Is It and How Can It Help?

Asset-based lenders play a vital part in financing the economy and are dedicated to the growth and well-being of their clients. They provide their clients with cash by lending on fixed assets, accounts receivable and inventory, and engage in factoring, purchase order financing, real estate financing and leasing. They include the asset-based lending arms of domestic and foreign commercial banks, small and large independent finance companies, factoring organizations and financing subsidiaries of major industrial corporations.

The increased cash availability provided by asset-based lenders often makes the difference between profitable growth and failure for the undercapitalized business. The flexibility and cash flow availability they provide have enabled countless companies to grow and take advantage of market opportunities.

Asset-based lenders most often advance funds when traditional sources are not available. They are familiar with various types of businesses and are responsive to the individual client needs. Whereas, traditional sources, such as banks, usually have a one-size-fits-all attitude.

The phrases, “too small,” “too new,” and “not enough net worth,” do not deter asset-based funders. These lenders are “proactive” rather than “reactive” and can often help with creative structuring of deals to accomplish the goals and needs of their clients.

These lenders - large and small alike - possess the experience and know-how to structure the proper financing program for their borrowers and specialize in financing business transactions covering a broad range of products and services, both domestically and internationally. They understand the ins and outs of the specific industry they deal with. They have made a point of learning the industry and they have also made a point of thinking “outside the box” to accommodate the industry’s special needs.

Asset-based lending has always been available to “big business” but is just recently becoming utilized by small business. The business world has begun to realize that the total of “small business” is larger than “big business” and is beginning to work hard to make small business aware of these funding options.

Russell Handley, owner of Test Communications Group in Newburgh, NY installs cable lines for large cable companies. In his industry, it is standard for these firms to take as long as 90 days to pay bills. So Handley uses factoring (only one of the numerous types of asset-based lending - which is the sale of accounts receivable) on occasion and getting money quickly for his invoices allows him to take on more work. In fact, he credits factoring with having helped him increase his annual revenue from $500,000 seven years ago to nearly $4 million today. “We wouldn’t have grown as fast as we did without it,” he says.

(Pofeldt, Elaine. “Raising Capital.” Success May 1999.)

Phillip Brach, owner of World Trade Knitting Mills in Brooklyn, NY says, “When you call with a question, you don’t have to wait days and weeks for answers from the president and vice president,” he says. He also credits factoring with allowing him to increase his production and sale by about 25 percent in two years. (Pofeldt, Elaine. “Raising Capital.” Success May 1999.)

Some banks are actually beginning to send clients they reject to asset-based lenders. They have decided it is in their best interest to refer their business to someone who can help the client. Then, when the client grows to the point where he is bankable, they feel he will be inclined to stay with them and borrow from them.

The cost is influenced by the credit risk and collateral associated with the transaction. Again, no one-size-fits-all concept or mindset!

When evaluating an asset-based loan, borrowers should consider the cost of financing in the context of the benefits to be received rather than on the stand-alone basis. Compared with other financing alternatives, asset-based lending is very cost effective and efficient and is there “when” you need it to take advantage of profit opportunities in the market. Asset-based lenders are also responsive to the urgency of a businesses cash needs.

Some of the options available through asset-based lending are:

Accounts Receivable Factoring

Bankruptcy-Reorganization

Construction Funding

Credit Card Receipt Advances

Expansion Financing

Equipment Financing

Franchise Financing

Import and Export

Inventory Loans

Equipment Leasing

Purchase Order Financing

Real Estate Financing

Secured Credit Line

Unsecured Credit Line

Venture Capital

Royalty Funding

Debra Maples is a certified cash flow consultant who counsels companies and sometimes individuals on turning virtually every type of cash flow, income stream, debt instrument, or private paper asset into cash.

Debra’s specialties include:

• Solving cash flow problems with financing techniques banks don’t offer.

• Accounts Receivable factoring; Purchase Order and Contract Funding

• Business Note financing.

Debra is available to assist you with the structuring, purchase, or sale of real estate notes and any other negotiable paper instrument. She can be reached at (225) 247-4370. For additional information, see Debra’s website at www.yourcashflowconnection.com

 

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 Terms of the Cash Flow Industry

“A” credit customers: Consumers with impeccable credit, who can obtain a loan from traditional lenders.

Acceleration Clause: Language in a lease that secures payments for the full term of the lease.

Accounts Payable: The amount of money a company owes for goods and services it has received; any outstanding debt that a company has.

Accounts Receivable: A collection of a company’s outstanding invoices (invoices which have not yet been paid by the company’s customers).

Accounts Receivable Aging Report: A report showing how long invoices from each customer have been outstanding.

Advance Rate: The percentage of the face amount of an income stream that a funding source will advance to a client.

Amortization: The gradual, systematic payment of a debt, such as a mortgage or other loan, in installments of principal and interest for a definite time, so that at the end of that time, the debt will have been paid in full.

Articles of Incorporation: A document filed with a U.S. state by the founders of a corporation. After approving the articles, the state issues a Certificate of Incorporation; the two documents together become the Charter of Incorporation.

Asset: Anything having commercial or exchange value that is owned by a business, institution or individual. A business’ assets might include its real estate, equipment inventory, intellectual assets such as copyrights or trademarks, and accounts receivable.

Assignability: The ability to assign (or sell) an income stream to another individual or business.

Assignee: The person or business entity who is given, obtains, or buys the right to an asset.

Assignment: The transfer of the rights, title or interest of any debt instrument that is properly owned by another party.

Assignor: The person giving or selling an asset, and subsequently, forfeiting rights to that asset.

“B” through “D” credit customers: These consumers have less than perfect to bad credit and usually cannot qualify for traditional financing. Also called sub-prime credit customers.

Bad Debt: Any debt that is delinquent and has been written off as not collectable.

Balance sheet: A financial statement that shows a business’ current financial condition, with assets on the left side and liabilities and net worth on the right side.

Balloon: The balance of principal that is due and owing in its entirety at a specified point in time, but in any event, less than the time required to fully amortize the debt.

Bankruptcy: A state of insolvency of an individual or organization. The inability to pay debts.

Beneficiary: The person or party entitled to receive the benefits, or proceeds, of the life insurance policy upon the death of the insured person.

Bill of Lading: A shipping document which gives instructions to the company transporting the goods.

Bill of Sale: A document used to transfer the title of certain goods from seller to buyer.

Business-based income streams: Cash flow instruments that are paid to a business by another business or government.

Cash flow: The flow of cash through a business or household. In business terms, cash flow involves the flow of cash into a company in the form of revenues, and out of the company in the form of expenses.

Cash flow broker: Professional whose primary purpose is to unite income stream sellers with funding sources. They may operate as referral sources or as the primary liaison for cash flow transactions.

Cash flow industry: The buying, selling, and brokering of privately held debt in the secondary marketplace; the marketplace where businesses and individuals get help managing their cash flow needs.

Cash flow instrument: Future payment or series of payments. Also called a debt instrument or income stream.

Cash flow specialist: A cash flow professional who brokers cash flow transactions or buys cash flow instruments.

Cash flow transaction: Occurs whenever a funding source pays cash to an individual or business in exchange for an income stream.

Chattel mortgage: A mortgage on personal property, given to secure a debt. Typically used in the sale of a business. Also called a security agreement.

Collateral: Something of value (land, a home, a car, etc.) that is pledged as security to ensure the payment of a debt. Collateral is promised to a lender until a loan is repaid. If the borrower defaults, the lender has the right, by law, to seize the collateral.

Collateral-based income streams: Cash flow instruments that are secured by collateral.

Collectability: Refers to the funding source’s ability to collect future income stream payments once they are purchased.

Commission: Fee paid to a broker for executing or referring a cash flow transaction.

Consumer-based income streams: Cash flows in which the party that owes payments is a consumer, a private individual.

Contingency-based income streams: Cash flows in which the recipient is not necessarily legally entitled to receive payments, or in which the amount of the payment is uncertain or contingent upon outside factors.

Conversion: The process of converting a qualified prospect into an active client.

Corporation: A legal entity, chartered by a U.S. state or the federal government, and separate and distinct from the persons who own it. It is regarded by the courts as an artificial person; it may own property, incur debts, sue or be sued.

Creditor: One who is owed payments on a debt by a debtor.

Debt instrument: Future payment or series of payments, or a debt that one party owes to another party. Also known as income streams or cash flow instruments.

Debtor: One who owes something and makes payments to a creditor.

Default: The omission or failure to perform or fulfill a legal duty, obligation, or promise (i.e. to pay a debt).

Due diligence: Exhaustive research on a transaction, income stream, client, and/or payor. Due diligence may involve credit checks, appraisals, UCC searches, lien searches, or on-site visits with clients.

Equity: The value or interest an owner has in property over and above any indebtedness owed on the property.

Escrow: The system by which money documents, personal property, or real property is held in trust for another party by a disinterested third party until the terms and conditions of the escrow instructions are completed or terminated.

Face value: The current principal balance on an income stream.

Factor: A funding source that specializes in funding accounts receivable.

Factoring: The purchase of a business’ accounts receivable at a discount.

Fictitious name: A legal statement filed when a person uses a name other than his or her own to operate a business.

Foreclosure: A legal proceeding in court to seize property given as security for a debt that is in default.

Funding source: An individual investor or an investment company that buys income streams.

Government-based income streams: Cash flows paid by a government entity, either directly or through an insurance company.

Hypothecation: Borrowing funds from a lender, investing those funds in a debt instrument, and giving the lender a security interest in the debt instrument as the collateral for the loan.

Income stream: A future payment or series of payments, or a debt that one party owes to another party. Also known as a debt instrument or cash flow instrument.

Institutional lenders: Savings and loan associations, local and regional banks, mortgage companies, finance companies, and commercial lenders.

Insurance-based income streams: Cash flows stemming from insurance companies and paid to individuals or businesses.

Intangible personal property: Something that has value but is not a tangible asset, for example, a trademark, copyright, patent, or trade secret.

Investment-to-value ratio: A measure of how secure a creditor’s position is and how likely the creditor is to recoup all of his or her money in the event of a foreclosure.

Joint venture: A business entity established for a specific task, operation, or goal.

Lead: A piece of information of possible use in the search for a prospective client.

Leverage: The ratio of debt to total assets.

Limited liability company: A form of business structure designed to combine the best of corporate and partnership attributes into one entity.

Loan-to-value ratio: A measure of how heavily mortgaged a property is and how likely the owner is to default on his or her debts.

Marginal credit customers: Consumers who may have had some slow pay problems, but generally pay their bills.

Market value: The price at which a ready, willing, and informed person would buy something; the price property would command in the current market.

Marketing: The process of identifying and communicating with qualified prospects.

Master Broker: Individual who has been certified and designated by the American Cash Flow Association to work with Diversified Cash Flow Specialists.

Mortgage: A written instrument that creates a lien by pledging real property as security for a debt.

Notice of Pre-lien: A document notifying the owner of real property that materials or services are being furnished to his real property, putting him on notice that the one sending it will look to have a lien against the real property if those materials or services are not paid for.

Owner financing: A type of financing in which the seller of a tangible item accepts a promissory note as a portion of the purchase price. Also called seller financing.

Partnership: A common form of joint ownership of a business.

Payee: Person or business that has the right to receive a payment or series of payments and is interested in selling that income stream for cash. (Also called the seller or client.)

Payor: The person, company, or government responsible for making payments on an income stream.

Partial: Any part of a payment stream that is less than the full amount due.

Personal guaranty: A contractual agreement between a funding source and a seller, whereby the seller assumes personal responsibility and liability for the obligations of the income stream.

Portfolio: A group or package of income streams of the same type.

Privately held: Owed to a private individual or business rather than to a bank or other financial institution.

Profit and loss statement: A financial statement that shows a historical record of a business’ income and expenses.

Promissory note: A written promise to pay a specified amount to a specified party over a certain period of time.

Real property: Real estate.

Replevin: A legal proceeding in court to seize property (other than real estate) given as security for a debt that is in default.

Reserve: An amount a funding source holds in its account to cover potential payment defaults. After a certain time period has passed, the funding source rebates the reserve to the client less any fees or charges for delinquency. Also called a bad debt reserve.

Satisfaction: The discharge of an obligation by paying a party what is due (i.e., the satisfaction of an IRS lien or the satisfaction of a mortgage).

Seasoning: The length of time payments have been made on a note or other debt instrument.

Secondary market: The marketplace where individuals and businesses can sell privately held income streams to funding sources for cash.

Securitization: The bundling and resale of debt instruments to investors; permitted only for parties licensed and regulated by the SEC.

Security interest: An interest in property, other than real estate, which is given as security for a debt or other obligation. A security interest is created by execution of a security agreement and one or more financing statements under the Uniform Commercial Code.

Seller: The person or company that is holding a debt instrument and wants to sell it.

Servicing: The collection of payments of interest and principal, and trust fund items such as fire insurance, taxes, etc., on a note by the borrower in accordance with the terms of the note. Servicing by the lender also consists of operational procedures covering accounting, bookkeeping, insurance, tax records, loan payment follow-up, delinquent loan follow-up and loan analysis.

Sole proprietorship: A business owned and operated by an individual.

Subordination: The act of a creditor acknowledging in writing that a debt due him or her by a debtor shall be inferior to the debt due another creditor by the same debtor.

Tail: The payment stream and/or balloon payment of an income stream subsequent to another party’s right and interest in the income stream. Usually the back half of the payment stream when another party has purchased the front half.

Tangible personal property: Personal property other than real estate, such as cars, boats, or other assets.

Time value of money: Concept that addresses the way the value of money changes over a period of time.

Title commitment: A commitment on the part of the insurer, once a title search has been conducted, to provide the proposed insured with a title insurance policy upon closing.

Title insurance: Title insurance can benefit either the payor or the payee. Should the beneficiary suffer any damages due to clouded or false title to real estate, title insurance recompenses the damaged party to the extent of the damages.

Title policy: An insurance policy that insures a party against loss due to a defective title.

Trial balance printout: A spreadsheet that lists all loans in a portfolio and their payment schedule. Usually required for a portfolio transaction.

Uniform Commercial Code (UCC): Standardized set of guidelines protected by law that set down how business transactions must be conducted.

Unseasoned: A lease or note that has had few, if any, payments made.

Viatical: The nature of viatical settlements is the assignment (transfer of life insurance benefits)and sale of a death benefit. In the beginning, viatical settlements were used primarily as a financial option for AIDS patients with a clearly terminal illness, who were unable to obtain the resources they need at a critical time, Eventually, victims of other terminal illnesses such as cancer and leukemia recognized the advantages of viating their life insurance policies to pay for current expenses.

 

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This is my first post on my new blog!

 I started about two months ago upgrading my outdated computer system on which I had previously started my first blog (www.debilbm/eblogs.com).  I quickly learned to be able to take advantage of a lot of the plugins and blog functions my old system needed to be upgraded — it couldn’t handle the newer technology.   It had been mostly used for email and a little websurfing previously.

 So, after lots of ado, I am finally to the point where I am ready to relaunch my blog with a new name and look as well as a better understanding of what blogging and the blogging community is about.  Granted, I am still a novice, but learning more each day and that I do enjoy blogging very much and am ready to get going again with it.

 So, please feel free to comment, share opinions, request information on a particular type of funding, etc.  I welcome feedback!

Adieu, Debra

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