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USC Marshall School of Business: Stephen Perl, CEO PMF Bancorp presents alternative business financing – Fin-tech to Crowdfunding

USC Marshall School of Business: Stephen Perl, CEO PMF Bancorp presents alternative business financing -Fin-tech to Crowdfunding from stephen perl on Vimeo.

Fall in to Shape… How to get Your Financing Approved

Learning the 5 C’s are a must for every Entrepreneur

Invoice Factoring WorldwideFor a while now the stock market has been throwing up red flags to investors of a turbulent future. However, at the same time all three major U.S. stock markets – the Dow, S&P 500, and Nasdaq – reached all-time highs in August 2016. With uncertainties like these in the stock market, many lenders are likely to be more hesitant and careful about who they provide loans to, meaning it may be getting harder to find the business financing you need. PMF Bancorp still has business loan programs, invoice factoring financing, inventory, and trade financing available to small businesses.

Here are tips from PMF to help you land your next loan…understanding the 5 C’s of credit will help you get your next loan approved:

  • Character | The first C, Character, refers to your reputation as a borrower. As a business owner, investors measure your character based on a number of factors. This traditionally includes your business credit report, and sometimes your personal credit score, which is measured based on your history of how you handled loans and other credit tools. Other factors that may be considered include your experience in your industry and the impression you made on the lender. All of these are combined to determine if you are to be considered a trustworthy recipient.
  • Capacity | Possibly one of the most important factors to a lender, they want to know what your Capacity is to pay back your loan. Financial data plays a crucial role in measuring this factor. Using well-thought out forecasts and previous P&L statements, you need to prove that you will have the cash flow to repay the loan as agreed.
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  • Capital | Lenders want to know that you have skin in the game and are committed to successfully running a business. One of the best ways to show this is through your own personal investment in the company. The more money you have contributed to making your operation a success, the more committed you will appear.
  • Collateral | Lending money is always a risk. One way lenders protect themselves from non-payment is with collateral. Collateral is an asset that can be taken over by the lender should you be incapable of repaying your loan. While lenders really don’t want your collateral, it represents a further way to tie your commitment to honoring your loan.
  • Conditions | The final C, Conditions, refers to how you intend to use the money being loaned. The purposes of the loan helps lenders determine the riskiness and other details of the loan such as interest rates, minimum payments, and repayment date. If the conditions are favorable, you are more likely to receive a lower interest rate.

Before you submit a request for funding with a conventional loan, invoice factoring financing, account receivable financing, or a small business loan may be other options to consider. Tough times may be ahead, and the possibility of more turbulent financial markets will make many lenders more cautious. By reviewing the 5 C’s of credit, you may be able to make yourself appear to be a more attractive to the lender of your choice and be able to secure the business financing you need.

Can Los Angeles Wholesalers Find Factoring Invoices to be Better than Bank Loans?

Factoring Invoices

Working Capital Is Essential

Factoring Invoice financing is not always thought of immediately by Los Angeles wholesalers because most businesses look to their local bank for loans. Local banks do not provide factoring because it costs too much to monitor and is not a product that fits their lending profiles.

Most businesses understand factoring as the conversion of invoices into immediate cash. This is correct, but some factoring companies are also commercial lenders so the local wholesaler should know all the lending services before using some other potentially more expensive ways to raise capital such as selling equity.

Here are the ways a business can fund itself….

Factoring Invoices Financing: Selling your business’s invoices can raise cash fast.

PO Financing: Funding suppliers based on credit worthy purchase order (POs) from your customers. Often, a supplier will not release your goods based on credit so having a finance company pay the supplier can be a big benefit to cash flow and timeliness of delivery.

Inventory Financing: Los Angeles wholesalers are often preferred over Chinese supplier by large customers because they keep inventory in the US for quick replenishment and can absorb service issues. However, how does a small or mid-sized wholesaler finance their inventory. With PMF Bancorp’s inventory financing, your business could use its regularly sold inventory items as eligible collateral.

Equipment Financing: Los Angeles wholesalers are constantly picking up goods at the port. They often need vehicle financing or equipment financing. PMF Bancorp has programs to assist with these credit needs as well.


Stephen Perl - 1st PMF Bancorp - Invoice Factoring

Stephen Perl – 1st PMF Bancorp – Invoice Factoring

Hot Money has long been a problem for China and can create major problems for commercial lenders and factoring companies financing trade as part of their portfolio. In some instances, factoring invoices are often derived from an up stream trade transaction that is also financed by the factoring company. Wu Ruilin, China’s Deputy of its State Administration of Foreign Exchange (commonly known as SAFE), has uncovered over $10 billion of fraudulent trade financing transaction especially with product flowing through 24 provinces including the Qingdao port (per Wall Street Journal Sept. 25th, 2014). Companies or entities that are transferring money in or out of China through trade transactions without the permission from SAFE are considered to be making “Hot Money” transactions. For example, the trade shipments involved in this type of “Hot Money” problem typically claim certain value on their shipping documents, but the actual value is not correct. Therefore, the trade financing or funding connected to this trade transaction is transferring far too much money for the actual value on the documents. This process allows money to be transferred across boarders without currency controls. China blames much of the real estate appreciation in the last 10 years to be due to money from these areas. Companies that are factoring invoices related to trade need to perform proper due diligence by having their own independent physical inspection at the port of origination to ensure the validity of the shipping documents.

A commercial lender or factoring company can take preventative measures to guard against Hot Money which is actually the process of laundering money in and out of China without the Chinese government’s approval. A lender’s major tool to prevent the financing of Hot Money trades is to have their own set of due diligence practice for any type of trade financing. First, a lender should have their own employees in China or boots on the ground. By having your own staff to inspect the goods at the port or point of origination, one have a high certainty that the collateral on the shipping documents match the value being financed. Also, basic KYC (aka Know Your Client) practices allow you to meet the requirements of the Patriot Act required by US law. I would suggest taking this a step further and make sure you have done your due diligence on the factory or supplier as well. Having knowledge that your factory and your client are both reputable entities and without major issue in the US and/or China adds a much greater level of security that your transaction will be successful.

Frequently in our due diligence practices, 1st PMF Bancorp (USA) and 1st PMF Capital (Hong Kong) use Hong Kong and Chinese government databases to review our foreign customers and their suppliers. We also have our own underwriting team comprised of bankers and CPAs that visit the larger transactions and require financial info in order to even provide a proposal. Having a good working knowledge of your local business and legal practices is key when financing in other countries. Hopefully, this info will add light to your future trade financing and invoice factoring deals. I can be emailed if there are more detailed questions.

Stephen Perl, CEO

1st PMF Bancorp – invoice factoring worldwide

Author: Secrets of Doing Business with China: Dancing with the Dragon

Stephen M. Perl, MS, MBA is the CEO of 1st PMF Bancorp, a leading US commercial bank lender, and the founder and CEO of ChinaMart® Los Angeles, a platform that assists Chinese companies in their investment in the USA.

Mr. Perl has successfully grown 1st PMF Bancorp’s lending portfolio to one of the largest private, short-term business lenders in the US with specialty in factoring and trade finance to company with annual sales from $1 to $50 million. He designed PMF Bancorp’s, “Supply Chain Plus Financing Program™ ” to provide the most comprehensive supply chain financing platform in the US for small to medium sized companies doing business between the US and China. Mr. Perl established the first private US lender in China in 2004 and has recently published a book called, “Dancing with the Dragon: The Secrets of Doing Business with China” (2012) as an executive’s guide to doing business with China.

Is China Trade becoming Less or More Expensive for Your Business?

Businesses working with China trade for importing goods often have to pay for their goods or labor to make many of their completed products for the US market.  Lets face it, the US dollar does not go the same distance it used to in China or anywhere else for that matter.

Unfortunately, the US does not make a lot of toasters or microwaves anymore so retailers and consumers are forced to buy Chinese made goods. US businesses often use trade financing to import goods.  We could buy Made in the USA products, but it is ultimately the consumer’s decision for the most part when they walk into Walmart and choose to buy the less expensive Chinese made product.

Businesses are all in a wait and see mode as the Chinese currency has appreciated drastically over the last several years by more than 30%; however, the Chinese economy looks like it may be finding its equilibrium as the economy matures.  The last couple of years of growth in China’s GDP have shown a dip in their GDP.  Their GDP in the last two years been between 7-8% which are the lowest levels in 15 years. These figures are probably a couple percent too high as well do to adjustments that should be taken internally before China reports. India was also thought to be a industrial machine and it has shown the same decline over the last several years.

The People’s Bank of China (“PBOC”) has also taken measures to slow currency speculation by widening the Yuan currency fluctuation bank to a 2% band.  The PBOC as reported by the Wall Street Journal today stated, “The Central Bank of China is pretty satisfied with the efforts [using this new widened band] to punish speculators”.  “Over the last 5 years, PMF Bancorp’s clients importing and trade financing goods based on factoring invoices from China have seen a dramatic increase in cost of goods and labor in China, but it appears to be leveling off in the last year” states Mr. Stephen Perl, CEO of 1st PMF Bancorp.

Therefore, is China becoming more expensive or less expensive for US importers can be debated but it should be clear now that the currency will probably find an equilibrium around this current level and there should not be anymore large jumps in appreciation.  On the contrary, if the Chinese people, businesses, etc. become worried enough about their economy then we will start to see a flight of capital which would depreciate the currency even further and would help make doing business in China cheaper again.  So, I think all parties have a vested interest in keeping the China Yuan stable at these levels.

Stephen Perl, MS, MBA
CEO of 1st PMF Bancorp


Author of Book: Dancing with the Dragon: the Secrets of Doing Business with China (Book 2012)