Historically a first tier lender has been an institutional lender such as a Bank or similar company which falls under the regulatory agencies such as the FDIC or Federal Reserve.  The rates of interest they charge are almost always tied to Prime, or to the Libor rate of interest.  The interest charged is at quoted rate plus a factor which can be as high as 4%.  An example would be if the rate was agreed to be the prime rate, you would take that rate and add 4% to it which would get you your annualized interest rate. 

The second tier lender is usually a company which does not fall under these regulatory agencies.  In some states they are regulated by the state banking laws.  But all second tier lenders are restricted to lending to businesses and are restricted from making any type of consumer loans.  All of the loans are secured by collateral and almost always personal guarantees of any owners of more than 20% of the stock.  Interest rates are usually tied to the prime rate but the rate which is added on rate is higher than a Banks because of the additional cost of doing business. 

The final tier is usually an individual or individuals who lend money but are quite often interested in one particular industry or type of collateral.  The terms from these lenders tend to very high interest rates and low loan to value ratios.

In the current banking economy few first tier lenders are actually making loans.  Therefore the second tier lender is acquiring a larger market base as companies who traditionally would have secured first tier financing are only option is to obtain financing with the second tier lenders.
That being said, one has to ask themselves if a lender who is not making loans can be considered a 1st tier lender.  Likewise if a commercial finance company is lending money in this economy can they still be looked upon as a second tier lender when they are the only segment of the business community that is lending money.

One of the major failings of most businesses is the lack of accurate financial information.  What these business owners don’t understand is that current and accurate financial information is the first thing and lender will want to see and if it isn’t up to par, well you know the old saying about its hard to make a good impression the next time. 

Small business owners find it very difficult to justify the cost and time associated with keeping current and accurate financial information.  This aspect of the business notoriously seems to take a back seat to all other activities.  If I can give any business owner a golden key of advice is while consistent accurate information may not guarantee a loan, it will at least give you an excellent platform to present your financing needs. 

How do businesses get a lender to provide funding for their business?  Anytime a business owner applies for credit and cannot produce a current Balance Sheet or Income Statement they have just made their request go to the bottom of the stack behind those businesses which always have current and accurate information on the company.  If you can’t do it yourself then you need a good bookkeeping service or accountant to assist you.  The cost is worth it in the long run.

Performance Funding Group, LLC is a locally owned and privately funded asset based lender who has been providing several different loan products since 1997.  Lou Wallace has been working in commercial loans since 1971.  Lou Wallace can be reached at 602-912-0200.

Are you positioning your business to be first in line to move when things turn around? The economy, while showing signs of improvement is still sluggish and everyone is still trying to figure out if it has reached bottom.  Small business owners are still scrambling to keep their business in the black.

So what happens if your company comes across a deal or contract that is very profitable?  The credit crunch is still with us. With Banks continuing to terminate existing lines of credit and business loans and are not making any new loans to business owners, what can you do to position your business to take advantage when these opportunities present themselves?

The answer may be in talking to an Asset Based lender or Factor to set up financing accommodations for your business now.  These lenders are still making loans and the unique thing about them is they add no debt burden to your company.  You don’t incur any loans to pay back until you have the contract or order to complete.  The financing is there when you need it and you won’t find yourself scrambling to find working capital you would need to seize these opportunities. 

Performance Funding Group, LLC is a locally owned and privately funded asset based lender who has been providing several different loan products since 1997.  Lou Wallace has been working in commercial loans since 1971.  Lou Wallace can be reached at 602-912-0200.
 

The magic of turning the calendar page brings new inspiration to everyone.  Reflection on the past year turns to focus to the New Year.  At the top of everyone’s list of questions for 2009 “How can I grow my business?” 

Consider offering extended terms to attract new business.  Encourage your favorite customer to place a larger order than normal and offer extended payment terms.  When companies utilize Factoring extending longer payment terms they can offset the expense by taking prompt payment discounts from vendors. 

Make use of a lull in business as an opportunity to follow up with customers to make sure you are providing the best possible product or service.  When speaking with your customers look for new opportunities with your existing customers. 

Evaluate the company operations and expenses to determine where improvement can take place.  Is there another product or service you can add to company that would compliment your existing products or services?   Speak with your vendors about current pricing on supplies. 

Many companies have lowered prices to attract and keep customers.  Negotiating lower production costs may allow you to offer lower prices to your customers and create more sales.

Service equipment that is normally too busy to be down for maintenance.  Determine if this could be a good time to replace equipment that is aging with a more efficient new model.  Our current economy may provide for attractive pricing. 

Performance Funding Group, LLC offers a wide variety of financing tools to assist companies with their cash flow requirements.  Factoring, Accounts Receivable lines of credit, Inventory or Purchase Order financing are just a few of the credit lines available. 

Performance Funding Group, LLC is a locally owned and privately funded asset based lender who has been providing several different loan products since 1997.  Lou Wallace has been working in commercial loans since 1971.  Lou Wallace can be reached at 602-912-0200. www.performancefunding.com

Start up businesses as well as expanding businesses need working capital.  Even established companies occasionally need a source of quick capital. The easiest and quickest way for a company to get this needed working capital is to factor it receivables.  All companies are asked by their customers to give them credit or terms.  The terms are usually for thirty days to pay.  Recently we have seen this being pushed to sixty and ninety days.  Everyone is feeling the credit crunch and customers are trying to use their suppliers as their bank by getting terms and stretching out their payments to these suppliers.  Businesses only have so much working capital or cash they can use to pay bills and employees.  If they use up all of their money to fill contracts and pay payroll they can’t buy raw materials or fill new orders until they collect the money that is due them.  If they can’t borrow any money then the business must cease taking orders or buying material until they get paid.  This is why factoring works so well with many businesses.  The factor or asset based lender is able to advance against the money that is already owed to the business owner and they can keep things running smoothly.  If the company has the profits built into its sales they can grow and expand as they obtain new orders or contracts.  Businesses growth is not limited.  As long as the business has sales and profits they are only limited by their ability to perform.  Not by the availability of working capital.  Factors and asset based lenders lend against receivables for delivered and accepted merchandise or completed work.  The clients they deal with determine how much they can borrow or grow.  The factor looks to their clientele as the source of granting credit.  Banks limit credit due to age of the business, historical growth, leverage and many other financial ratios.  Factors look at the customer base and the company’s ability to deliver the product and service at a profit.  Factors don’t limit a company on how fast or large it can grow.  About the only restriction you will run into from a factor is if you have a concentration with one particular customer.  They may limit how much you can borrow against those receivables.  This really isn’t a bad thing as being captive to one particular customer is never good for any business.

Performance Funding Group, LLC is a locally owned and privately funded asset based lender who has been providing several different loan products since 1997.  Lou Wallace has been working in commercial loans since 1971.  Lou Wallace can be reached at 602-912-0200.

There seems to be a lot of confusion in the financial arena about factoring.  While factoring is the oldest form of financing for a business most people including some financial experts have formed the wrong opinion of factoring.

I have had recent discussion with financial advisors and accountants who feel referring their clients to a factor or asset based lender will reflect poorly on them as professionals.  While they know their clients need assistance they believe that factors or asset based lenders are not as reputable as Banks.  They also feel that factors and asset based lenders are the lenders of last resort or only for companies that are on the verge of failing.  I am not sure who started this ridiculous theory but I have to believe it was probably some Banker who wanted business owners to believe that if they couldn’t borrow from a Bank then there was something seriously wrong with a persons company.  This theory even was promoted further by companies being told if their customers knew they were factoring their receivables they would quit doing business with them because they would believe they weren’t financially sound.

What the Bankers and other financial advisors failed to grasp is “what can a businesses do for working capital?” when the banks won’t lend.  In the current market financial market many banks are just not lending.  I recently spoke with a business owner who was looking for financing and he said he spoke to five banks all which told him they weren’t taking on any knew borrowers at this time.  He also said his business consultant and accountant told him that he should just tough it out rather than go to an asset based lender or factor as they told him this might reflect poorly on his business.  Even though he had a chance to grow his business and pick up new clients he was being advised to just wait until the banks started lending again.  How ridiculous was this advice?

In over thirty years of banking and asset based lending I have never known a business to suffer a loss of business because they factored their receivables or used an asset based lender.  This is a total misconception.  Factoring is well known in many industries and is accepted in some industries as the only way to finance working capital.  The clothing industry is a prime example.  Factoring works well with manufacturers, staffing agents, and the transporation industry.

Performance Funding Group, LLC is a locally owned and privately funded asset based lender who has been providing several different loan products since 1997.  Lou Wallace has been working in commercial loans since 1971.  Lou Wallace can be reached at 602-912-0200.

The financial markets have not dried up; the banks are just clogged.  Perseverance and creativity is a quality within every entrepreneur.  Business finance is readily available to those who look beyond the bank to asset based lenders.

Before there were business credit cards or home equity lines to borrow against there was Factoring.  Popularized originally in the garment, furniture and floor covering industries this form of financing has evolved to be an ideal form of financing for new or growing businesses.  Cash flow factoring is the perfect solution to cash strapped companies.  

In present economic times banks are far more critical of prospective borrowers.  Small business bank loans are all but impossible in our present environment where banks are not lending.  Asset based lenders can make business loans in a shorter amount of time due to reduced underwriting reviews.  Factoring is readily available to businesses who sell to their customers on terms. 

Performance Funding Group, LLC is a locally owned and privately funded asset based lender who has been providing several different loan products since 1997.  Lou Wallace has been working in commercial loans since 1971.  Lou Wallace can be reached at 602-912-0200. www.performancefunding.com

Where to find working capital is a problem that plagues all business owners.  Whether to seek an “Angel” Investor or find a commercial small business loans through an Asset Based Lender or traditional banking source.  The difference is dramatic. 

In both instances a debt is created; however a Lender doesn’t take a percentage of your company in return for the risk.  A start up business may need “seed” money but once it is successful, and the Investor has been repaid, the business owner has a partner, whether they want one or not. 

Lenders (Asset Based, Factor, Banks and SBA small business bank loans) on the other hand, charge interest or a fee for the financing they provide.  Once the debt is repaid the transaction can be over or can turn into a long running and mutually rewarding experience. 

The business owner should remember that when borrowing money you only pay the contract rate for the loan, while with an investor you typically share the profits of the company.  If the company is profitable the investor will likely earn much more than the cost of funds for a loan. 

Performance Funding Group, LLC is a locally owned and privately funded asset based lender who has been providing several different loan products since 1997.  Lou Wallace has been working in commercial loans since 1971.  Lou Wallace can be reached at 602-912-0200.  www.performancefunding.com

One of the largest differences between Asset Based lenders and Banks is the use of credit scoring.  Banks credit score everything they do when it comes to granting credit.  Bank loan officers must determine by credit score whether they will take the next steps to look at an extension of credit for a company.  If a company or its owner does not score within the range established by the Banks loan policies the business loan is rejected.  This credit scoring is the governing factor when the Bank looks at a business loan request.  The owner or a business must pass this credit score limit.  While some Asset Based lenders use credit scores, they have the flexibility to look beyond those numbers and look at the other strong points of a company.  Some Asset Based lenders do not credit score at all.

Asset Based financing relies heavily on evaluating the experience of the company’s management team, the industry, the client or customer base as well as the collateral that is available to secure the loan request.  All of these elements play a role in the mind of an Asset Based lender when determining an extension of credit. 

This is a continuation in our series of articles outlining the differences between Asset Based Lenders and Banks.

Performance Funding Group, LLC is a locally owned and privately funded asset based lender who has been providing several different loan products since 1997.  Lou Wallace has been working in commercial loans since 1971.  Lou Wallace can be reached at 602-912-0200.

www.performancefunding.com

Asset Based lenders supply the same type of loans as conventional banks plus they also can be more flexible in there under writing because of the other loan products.  Besides lines of credit, asset based lenders offer factoring and purchase order financing.  Some also offer term loans, equipment financing and leasing, as well as short term capital loans to meet short term cash needs.

These asset based lenders are less likely to experience the drastic mood changes like conventional banks and are more stable and consistent in there approach to the financial needs of the small business.  These lenders also tend to be more flexible in loan terms and advance ratios.  More importantly since they are not prone to panic they can be very helpful to companies that are just starting or experiencing dramatic growth.

This practical approach to lending by these lenders help matters under control if a company does experience a financial hiccup and needs the assistance of a lender who is there to help rather than hinder because they panic.  You will also find that asset based lenders tend to have a more experienced staff, better trained personnel and can offer more personalized service.

We will be over the next few weeks running articles explaining the differences in Banks and Asset based lenders and how they differ in there approach to small business lending.   

Performance Funding Group, LLC is a locally owned and privately funded asset based lender who has been providing several different loan products since 1997.  Lou Wallace has been working in commercial loans since 1971.  Lou Wallace can be reached at 602-912-0200. www.performancefunding.com