Asset-Based Lending Grows in Popularity
An article from this Tuesday’s Wall Street Journal highlights the flexibility that asset-based lending provides. Weezabi LLC, the company highlighted in this story, is a prime example of how small businesses can use an asset-based line of credit to say “yes” to new business opportunities. Read the article
Five Reasons Why 2009 was a Good Year for the Commercial Finance Industry
By: Mike Semanco, President, Hennessey Capital
I don’t deny that 2009 was an exceedingly challenging year for businesses of all sizes. However, 2009 may prove to be a watershed year for the commercial finance industry.
The economic crisis and simultaneous traditional credit drought created an opportunity for the commercial finance industry to step up to the plate and be recognized. The ability of many commercial finance companies to say “yes” to lending when many banks were saying “no,” often meant the difference between a business maintaining its position in the marketplace or closing its doors.
- The industry reminded the business community why factoring and asset-based lending have a 500 year history as it stepped up to finance small to medium sized businesses when traditional lending was either tight or non-existent.
- Asset-based lending and factoring garnered increased media attention this year, helping to educate business owners on the availability and value of such lending vehicles.
- The industry gained a new level of respect because of the expanded role it played in commercial lending and was able to significantly reduce the stigma associated with the use of factoring and asset-based lending, further burying the “lender of last resort” moniker.
- The industry benefited from the fallout in the broader financial services industry, presenting the opportunity to tap into some outstanding talent to further grow companies within the commercial finance field.
- With more business owners taking advantage of the benefits of factoring and asset-based lending, users of commercial finance are now more likely to share first-hand experience on how commercial financing vehicles helped sustain or grow their business
Credit Shortage Threatens Supplier Growth
Detroit Free Press writer Susan Tompor sheds light on the challenges that lie ahead for small to medium sizes businesses, particularly in the manufacturing sector. As analysts proclaim that the recession is over, how do small manufacturing shops access the capital they need to re-set production and re-hire workers? Read the article
Ditching the ‘Alternative Lending’ Moniker
by: Mike Semanco
As recently as March of this year, I was using the term alternative lending to describe our industry niche - but no more. Moving forward, “alternative” will be removed from our sales, marketing and conversational lexicon. The word alternative generally connotes, outside of the mainstream, not as acceptable as the standard, a secondary when the best option is not available. In an economy of unprecedented credit stress, the asset based lending/factoring industry has earned the legitimacy to take its rightful place as a niche financial lender - not an alternative lender.
Factoring and asset-based lending are time-tested options for small businesses and remain a vital form of commercial lending after 500 years because they have the ability to sustain and grow a company when traditional bank financing does not fit or, in today’s economy, becomes unavailable. Indeed, rather than being an alternative financial option, our industry has shown leadership in many metropolitan credit markets. So, it is safe to say, that in this unprecedented economic climate, what once was considered “alternative” is now mainstream.
Frustrated entrepreneurs and other traditional bank borrowers stymied in their efforts to obtain working capital are welcoming the opportunity to obtain financing through factoring and asset-based lending, finding it to be a credible and a solution-based approach. Our industry has been given a unique opportunity to help small businesses continue to grow and expand despite the more traditional road blocks that stand in their way. They know that it is sometimes not the cost of financing (within reason) but the availability of financing that can make or break a company. As an industry, we need to acknowledge the mainstream role that commercial finance is increasingly playing in small and medium-sized business markets. The lender of last resort reputation can safely and permanently be laid to rest. The ongoing recession has created increased interest within the entrepreneurial community regarding factoring and asset-based lending. As an industry, we should embrace this increased interest and use it as an educational opportunity to remind small business owners that “alternative lending” isn’t so “alternative” any more. Niche financing, like factoring and asset-based lending services will not only help sustain many businesses during a dicey economic outlook, but will be a critical business growth tool long after the current recession ends.
There are no definitive answers as to how long it will be before we see traditional lending back in full force. Despite my faith in the commercial finance industry there is no doubt that it will be for the good of the business world if we resume normal lending patterns soon. In the meantime, commerce must keep moving forward if we are to prevent the collapse of business as we know it - and the niche commercial finance sector is taking up the mantle. There’s no alternative but to celebrate such industry leadership.
Southeast Michigan Has a Lot Going
It is easy amidst headlines of climbing unemployment and bankruptcies abound in Detroit to become disgruntled, frustrated and just plain depressed about the current economic climate and the region’s future. If that is how you feel, you should have been among the 400 individuals that gathered along Detroit’s picturesque riverfront to celebrate the accomplishments of some of Michigan’s most outstanding businesses in technology, professional services and more. The Automation Alley Awards Gala was an fantastic event dedicated to celebrating all of the great things happening in Southeast Michigan - and what prudent time to celebrate. Hennessey Capital was honored to be among those honored. We salute all of the small and medium sized businesses that are making a difference everyday in our region. View the complete list of winners
Hiring Opportunities in Tumultuous Times
The economic crisis has created tremendous opportunities for companies looking to expand their teams. In the commercial finance industry the retrenchment of many firms has created a large talent pool of professionals with impressive credentials and histories of success who are now available to finance organizations in growth mode. Toby Dahm shares his thoughts on this topic in the September edition of The Secured Lender. Read the article
4 Months and Still Going…
Multiple media outlets reported of the consistent 4-month uptick in SBA lending. Better yet, all signs indicate that this type of lending will continue to increase through the remainder of 2009. “I think it’s a continuation of the impact of raising the percentage that we guaranteed to 90 percent and the elimination of the fees to the borrower,” said Richard Temkin, U.S. Small Business Administration District Director. “And the banks’ credit requirements perhaps are loosening somewhat, though that seems to be a slow process.”
So, what does this mean for small businesses? This is an encouraging trend that hints that credit markets are starting to thaw from the deep freeze of early 2009 and that banks are increasing lending. For entrepreneurs who have been struggling for the past year, this is good news. Those who are fortunate to still have a traditional bank loan are more likely to keep it. Those of you thinking about starting a business and considering a SBA loan, might just be in luck. Overall, this is a positive sign that Michigan may have hung the “open for business” sign back outside its window.
Macomb Incubator Promises Progress for Small Businesses
The new site of entrepreneurship for Macomb County was unveiled on Monday in Sterling Heights and what a sight it was. After interacting with many of the 400+ business owners, professional service providers and dignitaries, it was clear that entrepreneurship in Macomb County is alive and kicking. At a time when negative press is running wild, it was great to see so many folks energized about what the future has in store for our region. Business owners were excited about being able to leverage the Incubators talent in the areas of sales introductions, marketing, finance, business coaching and business planning. It will be a valuable resource in moving entrepreneurship forward. Learn more about the Incubator
Keys to Managing Your Collections Process
In today’s economy it is more important than ever to focus on collections. When sales are slow, companies tend to focus on increasing business and securing new contracts, however it is important to stay just as focused on managing collections.
The popular expression “Cash is King” rings true. Sales don’t pay bills, cash does. While increasing sales is a critical part of building a successful business, if you aren’t being paid for your product or service, you are causing your business more harm than good.
There are some steps small business owners can take to manage the collections process and positively impact the bottom line.
Before you make a sale or enter into a contract, you should understand the value of your product and the competition. It is important to know your customer and your “customer’s customer.” It is important to be aware of end-users ability to pay your invoice. Can they honor the terms of the PO and will you only be paid after your customer gets paid? For example, if you are selling your product through a distributor to a large retailer, you will likely be paid once the distributor gets paid. When evaluating the risk, it is the distributor not the retailer who is responsible to pay the invoice, so you will need to look at the strength of the distributor. Balancing sales with collection is looking at risk versus the reward. As a business owner, you should ask yourself “how much am I willing to lose?” and “how many ‘good’ sales do I need to make up for the ‘bad’ sale?”
The internal collections process is often overlooked, but it is crucial that you establish a clear collections procedure for your business and stick to it. Be sure you know what you can bill for, when you can bill for it and where to send the invoice. Send your invoices in a timely fashion and make sure to get customer approvals or “signoffs” on your work. It is also important to make sure you have a purchase order before you start work. Too many invoices don’t get paid because there was no formal purchase order issued.
As with any other aspect of your business, communication is imperative. You should follow up with your customer’s Accounts Payable (A/P) department early. It is much better to be aware of an issue early rather than after the payment is not received as expected. Building a trusting relationship with your customer will keep the lines of communication open and increase the speed and reliability of repayment. Internal communication with your sales department can also be helpful, as they may be able to collect an invoice as they are making another sale.
Unfortunately, despite efficient processes and consistent communication, issues can arise. Note red flags along the way and respond accordingly. Some key indicators include slow payments, rush orders, change in payment form and excuses are signs that you may have a problem. When this happens, know your leverage points. If you can not negotiate a payment plan, be prepared to scale back work or human resources and file liens where appropriate. You can also consider legal action or collection agencies but weigh the costs against the benefits.
While you will likely not collect 100% of your invoices 100% of the time in your business, however, following these tips may make it easier to secure your firm’s most precious resource cash.
If you are interested in learning more about this topic, Mike Semanco and Candace Pavliscak will present “Improving Collections” on July 21, 8:30 - 10:30 a.m., at Walsh College, Troy Campus. Learn more
SBA Lending Jumps in May
Good news from the SBA this week - could it be? Encouraging information featured in a Crain’s Detroit Business article indicates that small business lending, specifically SBA 7(a) loans increased in May. Could this mean preliminary signs of credit markets thawing? Perhaps the American Recovery and Reinvestment Act is actually creating a degree of recovery and reinvestment. Only time will tell, but things seem to be looking up for small business lending this month. Read the Crain’s article
