Topic: General Posts
Subject: How to Overcome The Liquidity Trap for Small to Mid-Size Companies
Submitted on 01-13-11 10:40 am
Message:
Please share your ideas as to how a small to mid-size company can maintain the liquidity it needs to operate and hopefully grow as the economy turns more positive.
Sources of traditional bank financing are more difficut or perhaps impossible to obtain for many of these companies. Other than leveraging their own Accounts Receivalbles or delaying payments to vendors, what other avenues are available? And at what cost?
Your ideas and opinions will be enlightening to all of us.
Bob Shultz
Partner
Quote to Cash Solutions (Q2C) LLC
Chairman Credit and Working Capital Management
FENG SIG
Message:
Please share your ideas as to how a small to mid-size company can maintain the liquidity it needs to operate and hopefully grow as the economy turns more positive.
Sources of traditional bank financing are more difficut or perhaps impossible to obtain for many of these companies. Other than leveraging their own Accounts Receivalbles or delaying payments to vendors, what other avenues are available? And at what cost?
Your ideas and opinions will be enlightening to all of us.
Bob Shultz
Partner
Quote to Cash Solutions (Q2C) LLC
Chairman Credit and Working Capital Management
FENG SIG
Replies
Subject: Re:How to Overcome The Liquidity Trap for Small to Mid-Size Companies
Submitted on 01-15-11 12:23 pm.
Message:
All sort of peer to peer lending groups have become popular. One of the largest that does nearly a $1 million per day is
* Receivablesxchange.com -
* Prosper.com
Message:
All sort of peer to peer lending groups have become popular. One of the largest that does nearly a $1 million per day is
* Receivablesxchange.com -
* Prosper.com
Subject: Re:How to Overcome The Liquidity Trap for Small to Mid-Size Companies
Submitted on 01-16-11 6:05 pm.
Message:
Bob, non-bank finance companies have filled the business lending void the past two years, though the banks are back and in better health with improved liquidity. Beyond leveraging A/R, ABL lenders will advance against Inventory, M&E, RE, and in some cases offer cash flow stretch loans. We have also seen recent subordination of intercompany and related third party vendor payables as consideration for offering a new business loan. The good news remains that asset-based lenders continure to offer creative solutions for most companies throughout the credit cycle.
John Rossi
NewStar Business Credit
[email protected]
Message:
Bob, non-bank finance companies have filled the business lending void the past two years, though the banks are back and in better health with improved liquidity. Beyond leveraging A/R, ABL lenders will advance against Inventory, M&E, RE, and in some cases offer cash flow stretch loans. We have also seen recent subordination of intercompany and related third party vendor payables as consideration for offering a new business loan. The good news remains that asset-based lenders continure to offer creative solutions for most companies throughout the credit cycle.
John Rossi
NewStar Business Credit
[email protected]
Subject: Re:How to Overcome The Liquidity Trap for Small to Mid-Size Companies
Submitted on 01-18-11 3:47 pm.
Message:
Bob;
One of the tools that we used to overcome the liquidity gap was to provide vendor financing to our customers thereby expediting their payment of outstanding receivables and taking the obligation off-balance sheet. Depending upon the industry, there are many non-bank financing companies that have made the sponsorship of such programs one of their market niches.
Regards,
Wayne Bognar
Message:
Bob;
One of the tools that we used to overcome the liquidity gap was to provide vendor financing to our customers thereby expediting their payment of outstanding receivables and taking the obligation off-balance sheet. Depending upon the industry, there are many non-bank financing companies that have made the sponsorship of such programs one of their market niches.
Regards,
Wayne Bognar
Subject: Re:How to Overcome The Liquidity Trap for Small to Mid-Size Companies
Submitted on 01-29-11 10:55 am.
Message:
Bob,
I work with many small businesses and the conversation generally starts with, "I need more cash, but the bank said no!". The non-bank finance companies have stepped up and offer a variety of structures to provide more liquidity. Each company and business model is different and the finance companies stick to their specific funding model to protect capital and efficient operations. The challenge is finding the right fit. I like your firm name, "Quote to Cash" because it brings focus to the process. It is easier to plug in more cash than improve the process, but as capital becomes harder to get and more costly the gains from process improvements increase. Also the tools that address both cash flow and process continue to improve. I see product companies selling directly on the internet benefit from both higher gross margins, automated transactions and immediate cash through credit cards and paypal. I am also starting to see new platforms that combine communication and payment for B2B transactions and finally get away from the old paper invoice.
Small suppliers are struggling as the liquidity crisis of the last few years has allowed large costumers to get away with abusive payment practices and push out terms from the 30 day standard to 45-60 days. More than ever, the small suppliers need to focus on all aspects of their cash flow and implement available transaction/funding tools.
Tom Hastings
The Interface Financial Group
Message:
Bob,
I work with many small businesses and the conversation generally starts with, "I need more cash, but the bank said no!". The non-bank finance companies have stepped up and offer a variety of structures to provide more liquidity. Each company and business model is different and the finance companies stick to their specific funding model to protect capital and efficient operations. The challenge is finding the right fit. I like your firm name, "Quote to Cash" because it brings focus to the process. It is easier to plug in more cash than improve the process, but as capital becomes harder to get and more costly the gains from process improvements increase. Also the tools that address both cash flow and process continue to improve. I see product companies selling directly on the internet benefit from both higher gross margins, automated transactions and immediate cash through credit cards and paypal. I am also starting to see new platforms that combine communication and payment for B2B transactions and finally get away from the old paper invoice.
Small suppliers are struggling as the liquidity crisis of the last few years has allowed large costumers to get away with abusive payment practices and push out terms from the 30 day standard to 45-60 days. More than ever, the small suppliers need to focus on all aspects of their cash flow and implement available transaction/funding tools.
Tom Hastings
The Interface Financial Group
Subject: Re:How to Overcome The Liquidity Trap for Small to Mid-Size Companies
Submitted on 02-03-11 10:31 am.
Message:
Bob,
There are creative ways of securing financing using a bank and not using a bank. Banks want to limit their exposure. Our colleagues mentioned using M&E as a source of collateral. This can be taken one step further. Many states offer financing for existing companies using banks as the vehicle to provide those funds. Examples are bonds in the state of New Jersey which have low interest rates and lives of up to 10 years through the EDA. Other states have similar programs like recovery bonds. However many of these programs are about to expire. SBA also has 504 loans which may be used specifically for equipment at great rates.
There are also incentives the Federal government provides for hiring employees. Please research the hire act of 2010. This is program ended in Jan 2011 but there may be a grace period allowing for filling. Some states and counties have similar programs. An example is a new businesses in NJ may be able to take advantage of the Business Employment Incentive Program (BEIP).
There are also avenues such as EB-5. This program is named EB-5 because it represents a fifth category of employment-based immigration and provides investors the opportunity to create a note with a US company in exchange for a green card. There was recently an article in the Wall Street Journal about a similar project using EB-5 funding. During 2010, Mayor Bloomberg, of NYC was on the news mentioning this opportunity too.
Another method, which is more costly is securing Mezzanine debt. This subordinated debt usually involves a note that transfers to equity after certain triggers or may have equity established from inception along with a note. The note is usually at higher interests rates in addition to the equity dilution. However Mezzanine debt is considered capital since it is subordinated to banks.
I trust this provides some information. Good Luck.
Best Regards,
Desmond Torruella
Message:
Bob,
There are creative ways of securing financing using a bank and not using a bank. Banks want to limit their exposure. Our colleagues mentioned using M&E as a source of collateral. This can be taken one step further. Many states offer financing for existing companies using banks as the vehicle to provide those funds. Examples are bonds in the state of New Jersey which have low interest rates and lives of up to 10 years through the EDA. Other states have similar programs like recovery bonds. However many of these programs are about to expire. SBA also has 504 loans which may be used specifically for equipment at great rates.
There are also incentives the Federal government provides for hiring employees. Please research the hire act of 2010. This is program ended in Jan 2011 but there may be a grace period allowing for filling. Some states and counties have similar programs. An example is a new businesses in NJ may be able to take advantage of the Business Employment Incentive Program (BEIP).
There are also avenues such as EB-5. This program is named EB-5 because it represents a fifth category of employment-based immigration and provides investors the opportunity to create a note with a US company in exchange for a green card. There was recently an article in the Wall Street Journal about a similar project using EB-5 funding. During 2010, Mayor Bloomberg, of NYC was on the news mentioning this opportunity too.
Another method, which is more costly is securing Mezzanine debt. This subordinated debt usually involves a note that transfers to equity after certain triggers or may have equity established from inception along with a note. The note is usually at higher interests rates in addition to the equity dilution. However Mezzanine debt is considered capital since it is subordinated to banks.
I trust this provides some information. Good Luck.
Best Regards,
Desmond Torruella