NeeBo Capital Blogs – Page 15 – The Best Info For Factoring…

The 3 Crucial Questions Purchase Order Finance Lenders Ask

Banks take a long time to decide whether or not to approve a loan application. Like all lenders, the primary concern of banks is to make absolutely sure that they will get their money back after a set period of time, plus interest.

And that’s why banks take a very long time to evaluate all your financial documents. They want to know that your company will still be up and running for the duration of the loan.

They will also want some form of collateral so that if you’re unable to pay back the loan they can at least get some thing from you to avoid losses. And of course, they will also need to see that you have an excellent credit history, as this indicates that you have a track record of actually paying back your loans.

But in purchase order finance, the state of your finances isn’t all that relevant. Neither is your credit history. The purchase order serves as collateral in a sense. What lenders consider important are the answers to these 3 questions:

How capable are your suppliers? In purchase order financing, the lender opens a line of credit to pay your suppliers. But you can’t fulfill the purchase order if your suppliers are not able to fulfill the needs of your customer. The suppliers must be able to deliver the goods in the required quality and volume on the timescales agreed upon.

What that means is that you can’t just pick a supplier that offers the cheapest product. You need suppliers who can meet all your requirements.

How good are you at executing the purchase order? While your credit history may not be all that important to the lender, your ability as a seller is crucial. The task may just be as simple as getting the products needed and then delivering them as is to the customer.

Or it may be more complicated; you take raw materials and turn them into finished products for your customers. Either way, you need to have a proven track record of fulfilling these orders.

It’s for this reason that many PO finance lenders insist on a completion schedule. You need to make sure that you meet the requirements.

What’s the credit quality of your customer? One of the first things the lender will do is to verify the purchase order to see if it’s authentic. Purchase order scams are not uncommon nowadays. Then they will check to see if the customer is reputable and has a good credit rating. It’s their ability to pay, not yours, which really concerns the lender in this case.

The answers to these questions may determine the size of the advance you can get, the types of fees you need to pay, and even whether your loan application is approved or not.

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The Importance of Experienced Purchase Order Finance Lenders

On the face of it, purchase order finance seems easy enough to understand. When you have a purchase order but you don’t have the money to fulfill that order, you go to purchase order finance lenders to provide you with the working capital you need. You then get the money to pay for supplies, you make or deliver the product to your customer, and both you and the lender get paid.

But it’s not actually that easy, and a lot of complications can crop up. After all, the lender has to deal with you as the borrower, pay the suppliers, and then collect the payment from the customer. And if foreign suppliers are involved, it gets even more complicated.

So what you really need is an experienced purchase order finance lender. So here are the things you need to find out about the experience of prospective PO finance lenders before you choose which lender to work with:

Length of time in the business. This is an obvious question, but it’s crucial to ask nonetheless. There are too many new finance companies trying to help those who have been denied loans by banks, but some of them are still feeling their way around.

While these lenders are getting more experience, their education may come at your expense. They may in time figure out what to do when specific problems arise, but that may be too late to help you out.

Focus on purchase order finance. Quite a few finance companies offer purchase order financing. But in reality, it’s not really their main focus. They actually specialize in factoring, and the PO financing is just a side business. They just offer it because it can lead to factoring deals.

Now these firms may work out when the PO financing is simple or small. But a lot of these PO financing deals can get complicated, and you need a specialist who knows what to do when complications come up. It doesn’t matter if a finance company has been in existence for the last ten years, when in reality they only do a couple of PO finance deals a year.

Familiarity with your industry. Each industry has its own procedures and rules, so you need a lender who is already familiar with those rules. That’s why when you ask around for recommendations for a PO finance lender, you ask other people in your industry. It’s the same thing when you ask for references. You should find out if the lenders have references in your industry.

The lender is supposed to help you out with your financing. You need to focus on fulfilling that purchase order, and not have to waste time teaching your lender the ins and outs of your industry.

Experience working with your particular customer. Your best bet is always a lender who has dealt with purchase orders from your customer before. Many of the bigger companies have complicated purchase agreement rules and regulations, and it will really help when your lender is already familiar with them.

Purchase order financing can be a maze filled with traps and dead ends. What you need is a lender who already knows the way so they can ensure you don’t get lost.

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The Different Kinds of Construction Working Capital Loans

When you’re in the construction industry, it’s quite normal to find yourself in dire need of working capital every now and then. Sometimes jobs are scarce, so you have no money coming in. It’s also not an industry in which payments are made promptly. You generally have to wait for 30 days to get your money, and sometimes clients may stretch that period out even further. If you rely on revenue for your working capital, then sooner or later you’ll have a problem.
The solution, in most cases is to get a construction working capital loan. There are several options available for you:

1.Personal loans. For some people, the best sources of loans are family and friends. They’re easier to approach, and generally much more flexible and generous in their terms. However, mixing business and your personal life isn’t always a good idea.

2.Equity funding. This is a loan secured by the value of your construction company. You can get a loan from friends or from investors and then use a percentage of your company as collateral. A home equity loan, in which you use your home as security, also falls in this category.
Bank line of credit. This is like having a credit card for your construction company. You’re allowed a maximum amount of money to borrow, and then you just pay interest on the actual amount you use.

3.The approval of this type of loan, the interest rate, and the maximum amount of the credit line will depend on the relationship you have with your lender, along with your credit score. In general, the interest rate is about 1 to 2 percent above the prime rate.

4.Short term loan. This type of loan involves the use of collateral (usually construction equipment you own), a fixed interest rate, and a specific repayment period (which is usually a year). But if you have an excellent credit history and you have a great working relationship with your lender, you may be able to secure a short term loan even without collateral.

5.AR or PO loans. You may also get a loan for your working capital needs if a lender agrees to consider your accounts receivable or your confirmed purchase orders. A loan like this is ideal if you don’t have the working capital to meet a particular sales order. But you will need a sterling reputation with a proven history of meeting obligations and debts before a lender can agree to this type of loan.

6.Factoring. Technically, this is not a loan at all, although it is a form of financing. You exchange the future value of your accounts receivable for current funds. You typically get about 80% of the value of the invoice, and you get the rest (less the factor’s fees) when the client pays in full.

7.Trade creditor loan. This is a loan that may be offered by a supplier. You get your loan only if you place large orders of supplies with them. You’ll also need a good credit history to be eligible for this type of loan.

Take advantage of all these opportunities. Paying interest on a loan is much preferable than running out of working capital.

A Typical A/R Loan

Accounts receivable loans are a special type of asset based lending. In this case, the asset is not the inventory, the equipment, the building or land. The assets in this case are the accounts receivable, which serve as proof that you will receive payments from your customers in 30 to 90 days.

For a clinic, A/R means the payments which can come mostly from insurance companies paying for the treatments of your patients. For a medical device company, the customers may be hospitals and clinics who bought equipment you manufactured or distributed.

Usually, a loan with accounts receivable as security will get you about 70% to 90% of the value right away. If you receive a loan, you will have to pay an annual interest rate which can be anywhere from 6% to 20% of the loan amount.

You still need to process and handle the invoices yourself, and the collection of the payments may still be your responsibility. However, your lender may insist that all customer payments should be immediately sent to them.

Factoring

Invoice factoring is a special kind of loan, because technically it is not a loan at all. It involves a “sale” of the invoices. Like an A/R loan, you get an advance on the value of the invoice, and the factor collects the payments for you. You can get regular reports as to the status of the invoices. When the customer pays in full, the factor then gives you the rest of the payment after it has deducted its fees.

Factoring can have several variations, depending on the agreement. In some cases, a factor may not be able to get its advance back from you if the customer files for bankruptcy. In all other cases, the factor can demand its advance back if for any reason the customer defaults on the debt.

There are several benefits to factoring. One is that a small clinic may be spared of having to worry about collecting their accounts receivable altogether. The factor can handle them for you, and you won’t have to talk to insurance companies who are almost always reluctant to make payments. Factors may even investigate potential customers and identify the ones which have a poor credit history. If you own a medical device company, such customers represent a high risk to your business.

Regardless of what kind of 2014 medical A/R loans you get, in general they are much easier to secure than regular and (unsecured) bank loans and lines of credit. It’s even possible to get this type of financing even if your own credit is not so good. What’s more important to lenders is that the credit of your customers is excellent. After all, the payments for the loan ultimately come from your customers.

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How To Get Cash For Your Invoices In 24-hours (Infographic)

What You Need To Know about Invoice Factoring in 24 Hours

Just about every small business owner knows that asking for a loan from a bank can be one of the most time-consuming processes ever known to man. The entire loan application is an excellent example of red tape nonsense. You have to submit the right documents, and then you have to wait days, weeks or even months. When you do hear from the bank, you may find that they only want more documents. It’s for this reason why invoice factoring in 24 hours seems so appealing.

A Standard Invoice Factoring Agreement

Part of the reason why invoice factoring is so popular these days is that it accelerates the collection process. Some businesses need money because most of their working capital is tied up in their accounts receivable. They deliver the product or the service for a client, but the client doesn’t pay cash on delivery. Instead, they promise to pay in 30 days, and sometimes the term is for 90 days. You have to wait for 3 months to get your money.

With invoice factoring, you don’t have to wait for long. This financing option isn’t actually a loan. It’s more like a sale of your invoices. You sell your invoice to the factor, and in return you get a percentage of the value of the invoice right away. So if one invoice is worth $10,000 you can get anywhere from 70% to 90% ($7,000 to $9,000) right away. You can then use that money for pressing needs, such as meet payroll or pay for utilities.

When your customer pays in full, you then get the rest of the payment, less the fees of the factor. You’ll need to pay the discount rate which is applied to the value of the invoice, as well as any fees for setting up the factoring line and for processing the invoice. In exchange, the factor often does the collecting for you.

Receiving the Advance Quickly

With some factors, you may have to wait for a few days in order to get your advance. The factor authenticates the invoice and also assesses it if it meets their standards. They may think that a particular customer of yours may be a poor risk, and they may not advance you the money at all.

But with some 24-hour invoicing service, you don’t even have to wait for a few days. In fact, you can get your advance in as little as 24 hours. If your needs are really pressing, then such speed can only be beneficial for your business. Some financial matters, such as payroll, can’t afford to be even a day late.

Immediate Factoring Approval

Sometimes, a factor may even claim they provide invoice factoring in 24 hours, meaning that your applications may be approved within 24 hours of calling and applying. For true emergencies, the impressive speed of this service can be truly helpful, and gives a very stark contrast to the slowness of bank loan application processing.

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Is It Possible to Obtain an Unsecured Business Loan in Florida?

Every day, you may hear stories about how difficult it is to obtain a business loan in the US. But small business owners in Florida (especially Southern Florida) are singing a very jovial tune these days. That’s because it’s now easier to obtain even an unsecured business loan in Florida.

The Current Loan Environment for Small Business Owners

For small business owners in South Florida, lending has become substantially less stringent since the start of the recession in 2008. According to one news report, the lending in that particular tri-county area has grown by an astonishing $414 million, which increases the total lending to $4.04 billion in 2013.

That’s an 11.3% increase from the year before, and it dwarfs the 3% nationwide increase in small business lending. It has been the most substantial lending for small businesses in the area since 2008.

For 2014, the outlook is even better. One loan broker company has already obtained 14 loans backed by the SBA for their clients as of September of this year, and they still have 10 loans in the pipeline. In comparison, they were able to get a total of 10 loans for clients for all of 2013. During the years of the recession, they were barely able to get any sort of loan at all.

If you’re a small business owner in Florida, then you may want to check out the database of the 50 largest lenders in the region.

What Are the Reasons for the Increase in Small Business Lending?

There are several possible reasons why a small business in Florida can now obtain a loan for growth and acquisitions more easily. Mostly it’s because many small businesses are doing much better these days, and therefore that makes them more creditworthy.

Another main reason is that it allows a bank lender to get involved with the entire book of business of tier borrowers. They can then be involved in the company’s deposits, wealth and treasury management, and insurance. This is a win-win situation, as it proves to be a more convenient setup for the borrower while offering a source of income for the bank lender.

Which Small Businesses May Not Obtain Small Business Loans?

Unfortunately, not all small businesses are created equal. At least not in the eyes of lenders. Some businesses may still not be eligible, and others may still be turned down.

For example, it is almost impossible for a startup business to obtain a bank loan in Florida—especially an unsecured bank loan. For most of the bigger banks, a small business can only qualify if they have at least two and a half years of experience, including tax returns. But even this rule has an exception. A few banks may even offer a loan to new businesses, but only if the borrowers are willing to pay a larger equity.

For startup companies, an unsecure business loan in Florida may be totally out of reach. But that doesn’t mean financing is completely unavailable to them. Some finance experts recommend that a startup may have to use factoring, credit cards, home equity lines of credit, as well as loans from friends and family.

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How to Approach a Lender Who Loans Money to Small Business Owners

Despite reports saying that banks are now becoming more amenable to lending money to small business owners, the sad truth is that it’s never easy to get a loan. A lender can be one of the most frustrating and most vexing minds to figure out. That’s why some people say that banks only lend money to those who don’t need it.

Nonetheless, as a small business owner you probably don’t have much of a choice. You need money to cover your operational expenses or to fuel the growth of your company. Without additional cash, you may not survive for long. Business is a harsh Darwinian environment, where only the adaptable survive. It’s sink or swim.

So if your business needs a loan, you need to know how to approach a lender to increase your chances of getting approved.

Are You Credit Worthy?

One of the first things that a lender will want to know is who you are. They won’t just look at the viability and profitability of your company. They’ll look at your credit history and financial status to see just how reliable and trustworthy you are as a borrower.

First they’ll check your personal credit score. At the very least, you need to have a score greater than 650, but if it’s less than 700 then the loan is far from guaranteed. For most lenders, a score of 700 is actually the minimum they’d consider. They’ll also take a look at your personal debt to income ratio. Your payments for personal debts should not be more than a third of your gross monthly income.

Then they’ll take a look at how well your business is doing. You should have be in business for at least two years, and your company should have a reliable record of incoming accounts receivable. Your cash flow situation will also be scrutinized (the higher, the better), and the riskiness of your industry will also be part of the evaluation. Some types of industries such as restaurants are seen as riskier than other types of businesses.

Approach the Right Lender

You can approach commercial banks, but there are other institutions which you can approach for a loan as well. Some banks focus more on businesses in a certain geographic area, while others specialize in particular industries.

You can probably go online and do your search there, as you can find a wide variety of lenders to choose from. But you may want to start with your own bank. Banks are more likely to approve loan applications from people they know. If they can’t help, they may be able to recommend a more suitable lending institution that fits your needs.

Prepare the Loan Package

The loan package usually includes your resume and your business plan. This may also require your financial results and projections, such as your cash flow statements, balance sheet, and profit and loss statements. Your personal financial info will also be required, and that includes your tax returns for the last three years.

After that, you need to wait for a month or so, although you can call once a week for a status update on your loan application. Don’t get frustrated, even if a lender who loans money to small business owners asks for more documentation. This happens all the time and yes it can be very annoying.

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Benefits of a Medical Credit Line for Businesses

While a loan or a factoring agreement can help your medical business, the Holy Grail for most players in the healthcare industry is still a medical credit line for businesses. These credit lines may be unsecured or secured by assets, but either way they can be a boon for your company.

You get access to more cash to run your business. You cannot overemphasize the importance of cash for any medical company. The entire industry depends mostly on insurance companies paying them on time and in full, and that’s not always a sure thing. Insurance companies are notorious for taking their sweet time in making payments, and often they may not agree to the full amount. That means a lot of your working capital is tied up in unpaid accounts receivable.
You can use the cash for a wide variety of business-related purposes crucial to your company. As the head of a medical company you need to make payroll and pay for overhead. What’s more, you’re in constant need of medical supplies such as bandages, gloves, and syringes. You need to maintain your medical equipment properly, and every now and then you need to upgrade your equipment so that you can compete with other companies which offer the same products and services as you do.
You only borrow the amount you need, when you need it. When you take out a loan for $200,000, you’ll need to pay interest on this amount even if you don’t actually use all of it. But a line of credit with a $200,000 limit is a different matter altogether. If in a month you only use $100,000 then you only pay interest on $100,000.
You can set the limit to an amount which you can actually pay. This is quite evident when the line of credit is based on your accounts receivable. Your receivables tell you how much money is coming to you, and that will determine the limit of your line of credit.
Getting a credit line is quick. It may only take you a few days, and in some cases the money will be available in a day or two. This is crucial when you need the money for a very pressing situation. For example, you can’t ever be late when it comes to payroll or paying for your utilities.
Sometimes you only need to pay the interest for the amount you owe for that month. It’s much like a credit card. Your loan agreement may only require you to pay the interest, although that means you won’t be able to get more funds for that month unless you reduce the balance of the loan.

To set up a credit line of business, you’ll need to show proof that you your company is in a solid financial state, and that you have the credit history that justifies the trust placed upon you by the lender. You’ll need to prepare your documents, and you may have to offer your inventory, equipment, or your invoices as security for the medical credit line for businesses.

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Get a Factoring Proposal from Each Lender So You Can Evaluate Them

One of the surest ways of comparing factors is to get a factoring proposal from each of them. Here’s how you do it:

First you need to make sure that the factoring proposal contains all the necessary information. It has to specify the advance, which is the percentage of the value of the invoice given to you initially; the discount, which is the rate you pay for the cash advance you receive; and the factor’s additional fees.
Next, check if the advance is enough for your needs. Get a list of the invoices you will submit (and those which you know will be approved for factoring) and then calculate how much you can get in advance for them. Is the amount of money you’ll be receiving in advance sufficient? Keep in mind that some lenders may offer only 70% of the value of the accounts receivable, while others may offer as much as 90%.

If the advance from a particular lender is not enough for your needs, then they need to be eliminated among your candidates.

Now it’s time to look at the discount rate. This is much like the interest rate for loans. There are several ways of looking at this number. For example, some experts recommend that you find out the “true cost per dollar” by dividing the discount rate by the advance rate. A 70% advance rate with a 3% discount rate gets a true cost per dollar of (0.03 ÷7) of $0.0429. But an 85% advance rate with a discount of 3.6% has a lower total cost per dollar at just $0.0424.

What you need to remember is that the discount rate applies to the amount of the invoice, and not to the money you get in advance. This is why getting a larger advance is better than a smaller one. If you get $80,000 in advance from your $100,000 invoice, you pay $3,000 for the privilege if the discount rate is 3%. But if the advance is just 70%, then you only get $70,000 and you still pay $3,000 for that money.

Finally, you need to think about all the ancillary fees the factor may charge. There may be setup fee for the factoring line. There may also be a fee for each account receivable, so that a pack of ten receivables totaling $100,000 can be ten times more expensive in ancillary fees than a single receivable worth $100,000.
Add the total cost into your analysis, so that you will have a very clear picture of how much you will get in advance and how much you have to pay for this kind of service. The lower the total cost, the better it is for you.

Just keep in mind, however, that when you get a factoring proposal it should not be your only consideration. You need to know if the factor is easy to work with, if they are trustworthy and professional, and so on. You will need to ask for references to find out.