Alternative and non-banking financing – Do not be afraid!
The good news is that, despite the narrow credit environment, there are many alternative and non-bank financing options available to companies that need cash infusion, whether strengthening the Fund. turnover or facilitate growth.
However, the bad news is that business owners often fear non-banking funding because they do not understand it. Most owners simply rely on their banker for financial information and many bankers (unsurprisingly) have only limited experience in options beyond those offered by the Bank.
To help relieve part of the fear that homeowners often have alternative financing, here is a description of the most common types of non-bank financing. There are many companies in difficulty today that could benefit from one of these alternative financing options:
Full Factoring Service: If a company has financial challenges, full-service factoring is a good solution. The company sells its outstanding debtors on an ongoing basis to a business financing company (also called factoring company) at a rebate – typically between 2 and 4% – and the factoring company manages the debt until this that it is paid. This is an excellent alternative when a traditional credit line is simply not available. There are a number of variables to a program, including full remedy, non-recourse, notification and non-notification.
Factoring Spot: Here, a company can sell only one of its invoices to a factoring company without any commitment to volumes or minimum terms. It looks like a good solution but it should be used sparingly. Spongy factoring is generally more expensive than complete service factoring (in the 5- to 8% reduction range) and usually requires extended controls. In most cases, it does not solve the lack of underlying labor capital.
Accounts Finance (A / R) Financing: A / R funding is an ideal solution for companies that are not yet trivialized, but have good financial statements and need more money than a traditional lender will provide. The company must submit all its invoices to the A / R Financing Corporation and paying a guarantee management fee of approximately 1 to two per cent to make them professionally manage. A borrowing base is calculated daily and when funds are requested, an interest rate from 1 to 1 to 5 points is requested. If and when the company becomes commonable, it is a fairly easy structure to a traditional bank credit line.
Asset-Based Distribution (ABL): This is a guaranteed installation by all the assets of a company, including a / R, equipment, real estate and stocks. This is a good alternative for companies with the right mix of assets and a need for at least $ 1 million. The company continues to manage and collect its own receivables but submits an aging report each month to the company ABL, which will periodically review and verify the reports. Fees and interest make this product more expensive than traditional banking financing, but in many cases it provides access to more capital. In the good situation, this can be a very fair compromise.
Buying Control Financing: Ideal for a company that has one or more purchase orders but lack of credit from the suppliers needed to complete it. The company must be able to demonstrate a history of execution of the orders and the account debtor place the order must be financially strong. In most cases, a PO financing company requires the participation of a factor or lender based on assets in the transaction. PO financing is high-risk funding. The costs are therefore generally very high and the required diligence is quite intense.