We offer cash advance rates of up to 97% -- exceeding accounts receivables financing industry norms by 20%. The typical maximum in the factoring industry is 70-80%. We can offer these great rates because of our unique and flexible combination of bank and private financing.
Imagine flexbility that no one else offers. Unlike the others, you choose what works best for you; you sign no long-term contracts; you pay no fees when your account is inactive. You set up your contract to meet your cash flow needs, not ours. You can choose between using our most advanced technology or using the old-fashioned systems - we maintain both for you. Unlike the others, our objective is not to force you to conform to us, but to get you the cash you need in the quickest and most efficient manner.
Please contact us today and our seasoned invoice factoring professionals
will help you get the cash you need today.
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Background on Accounts Receivables Financing
To understand how ABS came about and operate, we must look back more than 20 years to when the government decided to make residential housing affordable by making investments in mortgages attractive to investors, thereby increasing the availability of mortgage financing. The government guaranteed these loans, provided they met certain requirements. This allowed for the creation of pools of "conforming" mortgages that ultimately were guaranteed by the government. They became very attractive collateral for investors. These accounts receivables financing investment instruments are commonly known as GNMAs (Ginnymaes), FNMAs (Fanniemaes), and other more esoteric, less recognizable names.
This was the beginning of a very important trend in U.S. capital markets. Both lenders and investors realized that sometimes an investor is better off in terms of risk if he buys a pool of loans than if he lends money directly to the company that booked the loans.
Nowadays, investors invest directly in all kinds of grouped assets: mortgages, student loans, car loans, credit card receivables, leases, even franchise dues or insurance premiums. They do this by buying ABS, notes or bonds issued by a special purpose company, the sole function of which is to hold the receivables which are the assets that back the securities. ABS have become so much a part of our financial markets that, in 1993, more ABS were issued than corporatebonds.
These special purpose companies are hybrids: like banks and finance companies in the sense that they are interested only in earning interest on a financial transaction, and like factors in that they purchase receivables.factoring companies
f not, actual anticipated purchases may be substituted for deprecation.
The expected minimum ratio of cash flow to debt service ranges from 1:1 to 1.5:1, depending on the lender's perceived risk. This means that for every dollar of interest and principal repayment, the business must generate an equal or greater amount of cash after tax.
Finally, capital is an essential ingredient. Capital is the equity of the company, which includes amounts initially funded by stockholders plus cumulative earnings of the company from inception, minus dividends distributed. Debt that is explicitly subordinated to the bank's is included with equity or capital rather than debt.
Lenders compare capital with a company's total indebtedness. The relationship is expressed as the ratio of debt to equity. Total debt divided by equity or capital must be in the maximum range of between 2:1 and 4:1. At a 2:1 debt to equity ratio, $1 must be equity for every $2 borrowed from banks or vendors. Companies that fall short are considered undercapitalized.
Fortunately, there are alternatives to the conventional criteria.
Asset based arrangements
Businesses that have operated for many years often have built up substantial collateral, such as owned real estate. These businesses may be unable to satisfy the cash flow requirements of conventional lenders. Or, if the business was recently acquired, it may be short on capital. In these situations, asset based lenders are an excellent option.
Asset based lenders take higher risks because of their focus on collateral. In return, their interest rates are somewhat higher than those of conventional cash flow lenders.
They also monitor loans much more closely and require frequent collateral reporting. Their advance rates generally follow those outlined for conventional lenders.
In more extreme situations, asset based lenders do not go far enough in terms of their risk tolerance. Other types of lenders may be able to relax cash flow and capital requirements even more, while offering higher advance rates. Ultimately, lenders actually take title to assets themselves. For accounts receivable, the arrangement is known as factoring.
But selling assets also applies to larger things that the company needs in order to operate. Equipment and real estate can be sold to and then leased back from third party investors.
Many of these are private investor groups that have raised funds just for this specialized purpose. The availability of these funds enables businesses to free themselves of more onerous arrangements and, for real estate, to obtain time to shop for less expensive facilities.
A company for which sale-leaseback of equipment worked particularly well was one entering the automotive industry as a tier one supplier. The process entailed long lead time between order and production. Much of this time was spent tooling up and investing in expanded staff and facilities. Naturally, the result was projected operating losses until this new business started. A conventional bank could not see past the months of anticipated negative cash flows.
An equipment lessor, however, could be much more collateral focused. The ultimate structure allowed the company to sell the equipment to the lessor for 100% of its cost and to lease it back for five years, returning it to the lessor at the end of the term at a reasonable rate of interest. If the company wished to purchase the equipment at lease end, the effective interest rate was significantly higher. But then again, the desire to purchase would mean that the new program had been successful, and that there would be plenty of profits to spend. In this manner, the arrangement reduced the risk to the company.
Cash flow alternatives
invoice factoring
freight factoring
account receivable factoring
Less established companies may have significantly fewer assets to offer. Because of their kick of collateral, they likewise have trouble obtaining conventional financing. Often, however, they have cash flows that can attract alternative lenders.
The major sources of funding that focuses on cash flow are providers of subordinated debt or mezzanine financing. They measure cash flow using EBITDA, or earnings before interest, income taxes, depreciation, and amortization. They view their niche as being able to provide a layer of financing over and above what the collateral advance rates support.
For example, a conventional bank would prefer to keep its loans at less than the borrower's EBITDA multiplied by three. If a borrower has EBITDA of $1 million, for example, lenders would rather not provide more than $3 million. Providers of subordinated debt or mezzanine funding, on the other hand, are willing to raise the multiple to four with another $1 million in debt.
Companies specialized in raising money through securitization have started to focus on financing health care providers in general and nursing homes in particular. These ABS companies typically will buy a nursing home's receivables but leave the collection and whole receivable management process in the hands of the nursing home. ABS companies are highly experienced in an extremely narrow field. They can derive a greater amount of confidence than a bank from the assets they finance. Consequently they do not focus on a company's financial standing as much as a traditional lender does. But these are not the only reasons they can be an attractive alternative to traditional lenders for nursing homes.