As a Matter of Factor

As a Matter of Factor

When I am engaging in a small business networking event, eventually someone asks what I do. I explain to them that I get small businesses and commercial real estate investors loans when banks can’t lend to them. It never fails that at least one person in the crowd will respond with, “Oh, so you factor huh”, after which a solemn sigh seems to be collectively released from the crowd.

Well, the “factor” of the matter is, yes, that is one of my many loan products that I can offer. As a matter of “factor”, it is one of my best products. Because of that, I would like to take some time to debunk some myths that are well entrenched in the small business world about factoring. Let’s look at the facts of factoring.

Factoring is simple to understand. Let’s say that you are a company that receives much of your capital from accounts receivable. It may take you thirty days from the time you spend some of your working capital to supply your customer with a product you sold to them, to the time your customer pays.

What if your customer orders double the amount of the product you are selling them? You have to come up with twice the normal amount of working capital to produce the order. You don’t make it a habit to keep twice the capital you need just sitting in an account doing nothing. That is bad business. So now you are in jeopardy of losing your position with your customer if you don’t come up with the capital to produce the goods your customer needs. Both you and your customer lose future sales revenue and your customer looks for another vendor to supply them with what they need.

But wait; there is a solution to the problem. What if you could find someone to buy your receivables before they are due, at a discounted price, and provide you with cash giving you time enough to manufacture and deliver your product.

Welcome to factoring. All you need to do is find a good, non-recourse factoring company.

The factor company I use will do just that without robbing you blind. They are a non-recourse factor, which means that if your customer skips out without paying your receivable, you are not stuck with the bill. How about that for credit insurance? This factor also has some of the best factor rates in the business.

Here is a typical deal. You have a receivable worth $100,000. This factor will buy that receivable for 97 cents on the dollar. They will immediately give you 80% of the receivable, $80,000. You then use the money to manufacture your goods. After the factor receives the rest of the receivable in 30 days, they will give you $17,000 and keep $3,000. Your sales revenues doubled minus 3% of the receivable.

To me, that is something to sigh about… a sigh of relief. That is a deal that not many small business owners would pass up. There are factoring companies that do take advantage of small businesses that need this service. Some factors take as much as 30% of your receivable. To that, I say, it’s your own fault for not shopping around and going with a good factor. Would you agree?


Position Yourself to Get a Non-traditional Small Business Loan

In a world where traditional banks have cut back on their small business lending, small businesses have had to scramble, sometimes unsuccessfully, to raise working capital. To the shock of many small businesses, getting a small business loan from a traditional bank hasn’t been as easy as it may have been in the past. When this happens, the search for an alternative source of borrowing is on. This is where non-traditional lenders step up.


Many small businesses seeking more working capital are unaware that there are other borrowing options out there. Well, there are. Actually, there are many different options for borrowing the working capital they need. These non-traditional lenders do not conform to the same underwriting guidelines as a regular bank.


One example is a lender that will not consider the small business owner’s personal FICO score as a major factor in its underwriting process. This type of lender will focus more on the health of your small business. To do this, they look at your small business’s cash flow using your business bank statements. They also consider your annual revenue.

Here is how to position yourself to get a non-traditional loan based on your cash flow. We will discuss the minimum criteria and then the average criteria. First, the minimum criteria:

  • FICO = 500 or better.
  • Annual revenue = $100k or more.
  • Minimum monthly business bank balance = $1k/month for the last three months.

This type of loan may get you up to $35k in working capital.

Here is the criterion for an average loan that may get you up to $100k in working capital:

  • FICO = 620 or better.
  • Annual revenue = $150k or more.
  • Minimum monthly business bank balance = $3k/month for the last three months.


These are just ballpark figures to position you to get a non-traditional, business cash flow oriented working capital loan. If you meet, at the least, these requirements, though, you are well positioned to get some decent working capital funding.

For more information on small business loans, go to or Google Specialized Capital Funding.






My Bank Tried Their Best

Your local bankers want to lend money to small businesses. They have entire departments that are committed to the development of small businesses. They strive to help your business. But often times, as much as they would like to help you… they can’t.

You walked into your local bank expecting to get the same loan to grow your business as you always did. Your business financials are the same, or better in some areas, as they always were. It was a sure thing. But a few days later, your bank called. Your loan had been declined! Why was it declined now?

Two possibilities are; your personal credit score has changed or the bank has tightened their lending standards.

Let’s look at the first one. Credit scores can fluctuate for a multitude of reasons. Some score changes are caused by having something negative pop up on your report unexpectedly. It could have been caused by leaving higher than usual balances on your credit cards at the end of the month. Maybe your business partner opened a new line of credit.

Sometimes, a drop of just a few points on your FICO is all it takes for a bank to not be able to get your loan through underwriting. It’s a good idea to use a reputable credit monitoring agency to keep an eye on your credit if you regularly take out loans to grow your business.

The second possibility is that the bank has tightened their lending standards for commercial loans. In their report “The July 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices”, The Federal Reserve Board stated that some banks had “cited a less favorable or more uncertain economic outlook as the reason [for tightening their lending standards]”. Maybe your bank is one of these banks. Your business is doing well. You are in a position to grow but you are a victim of the economy.

What now?

Don’t stop trying! You can still get that loan.

Since the tightening of lending standards, many innovative nontraditional lenders have opened their doors. Many of these innovative lenders do not follow the same underwriting guidelines as traditional lenders. That is what makes these types of lenders innovative.

One lender, in particular, puts much less importance in the business owner’s personal credit score and more emphasis on recent and past performance of your business. They have constructed an underwriting model that will tell them if you are a risk or a good candidate for a commercial loan. Their model will also gauge how much they can lend you and at what terms. If your personal FICO is low, but your small business is performing, you can get a loan. This is innovation at its best!

Other nontraditional lenders may have other models and guidelines to evaluate whether your business is risky to lend to or not. The point is – if your bank tried their best but can’t help you, don’t give up. There are nontraditional lenders that can assist you in getting the working capital you need to grow your business.


Burn the Map!

Burn the Map!

We’ve been to seminars, read books, and visited tons of web sites on how to start and run a small business. We were given advice on how to write a business plan and how to follow it. We have done just that. We made a “road map” for our business to follow. Our plans were flawless. Startup capital was achieved. Our marketing plans were successful and our businesses were up and running according to plan. Things were looking good… and then it happened.

What happened? We can all fill in the blank right?

I have a friend that developed a great business plan to open up a boutique. She used all of her savings for her startup. She picked out a great retail location near a mall that had high traffic and great visibility. She stocked her boutique with sure to sell fashions and launched a great ad campaign. She scheduled an event packed grand opening. The day was fast approaching for this grand event… then it happened.

City trucks roared onto the street in front of her boutique and began the process of closing access for several blocks on both sides of her shop. She found out who was in charge and asked what was happening. The city had decided to revamp the sewage system and broaden the road. How long would it take? No one knew. Six months later, after trying everything she knew and offering a lot of free stuff, she was forced to shut down her boutique. Her road had an unexpected detour.

Roadmaps are great planning tools for start-ups, but we all have either known someone who has had to take a major detour or have been forced off our path ourselves.

When that happened we had to forge a new way. A way that was previously unknown to us. Our map became useless. It was time to leave the old map behind. We launched out to either build on to our business skills or develop entirely new ones. It was time to Burn the Map. Our wits determination would be our map! We had to get off the highway and turn our journey into an expedition of the unknown.

That’s the way real life is for an entrepreneur isn’t it? It’s like an expedition of the unknown. Sometimes, seemingly overnight, we are forced to become the David Livingston or Ernest Shackleford of the business world.

Sometimes we feel like we’re alone on this expedition, but we’re really not. Chances are, there has been someone out there who has been on the same piece of “unknown” wilderness that you are traveling now. They are usually happy to share with us how they overcame the certain obstacle you now face.

That’s what this blog is all about. It is a blog that will be providing stories and tips that we can all share. We’re all on this journey together. I encourage everyone to leave their stories and tips as well. Together, we will have a successful expedition!