Alternative and Non-Bank Financing
The good news is that despite the tight credit markets, there are many options and non-banking finance companies that need a source of funds increase working capital or to facilitate growth. However, the bad news is that employers often willing to finance non-bank because I do not understand. Most owners simply rely on their bank accounts and many bankers (as expected) have offered only limited experience with options on the bench. To relieve some of the fear that owners often alternative financing, the description of the most common types of non-bank financing. There are many companies in trouble, which is known today, which could benefit from one of the existing funding options:
Full-Service Factoring: If a company in financial difficulties, is a full service factoring a good solution. The company sells its outstanding claims on a continuous basis for a commercial finance company (including a factoring company) at a price ranging between 2.4 percent and then says the factoring company assumes “you pay for. It is a great alternative if is a traditional credit line, it simply exists. There are a number of variables in a complete program, including the use of, without recourse, no registration and notification.
Spot Factoring: In this case, a company can sell their invoices to a factoring company, with no minimum commitment or concepts. Sounds like a good solution, but should be used sparingly. Spot Factoring is generally more expensive as full service factoring (in reducing the percent range 5-8) and usually requires a series of checks. In most cases, does not solve the underlying problem of lack of working capital.
Accounts Receivable (A/R) Financing: A / R financing is an ideal solution for companies that have not yet eligible, but that good grades and the need for more money from a lender of traditional supply needs. The company must submit all their bills through the A or the financing company and I pay the administrative costs of guarantees of about 1.2 percent with professional management. A borrowing base is calculated daily and as a means to an interest rate of prime plus 1 to 5 points applied is needed. If and when the company is bankable, is a fairly easy transition from a traditional bank line of credit.
Asset-Based Lending (ABL): This is a safe investment for all assets of a company, including A / R, equipment, real estate and inventory. It is a good alternative for companies with the right combination of assets and needs at least $ 1,000,000. The company used to manage and collect their own debts, but the monthly reports to the aging of the ABL, review and analyze reports regularly. Fees and interest that this product is more expensive than conventional bank financing, but in many cases provides access to more capital. In the right situation, this can be a very fair compromise.
Purchase Order (PO) Financing: Ideal for a company that a purchase order (s), but does not require credit providers to offer. The company must be able to complete a command history, and the debtor’s account to become financially healthy. In most cases, requires the participation of the financial institution or a PO a factor asset-based lenders in the transaction. PO financing is a type of high-risk financing, so the costs are very high in general and due diligence is very intense.
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