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All I Want for Christmas is Cash Flow

All I Want for Christmas is Cash Flow

All I Want for Christmas is Cash Flow

As our children create their Christmas lists of toys they want the most, business owners are creating lists of their own. While they may also include some toys, perhaps Google Glass or the Apple Watch, a healthy and successful business is #1 on the list for most.

One of the best ways of measuring business health is cash flow. Healthy cash flow doesn’t necessarily mean making a lot of sales – although that helps. What you should be seeing when you look at your cash flow is more cash flowing in versus flowing out. This signifies healthy cash flow and solid working capital.

For many business owners, the holidays represent increased demand on working capital. Customers are buying more online and in stores as part of the holiday gift-giving tradition. This often means buying on credit versus paying with cash. While increased accounts receivable look good on the balance sheet, it does not equate to cash in hand. Instead, you are paying more for production, labor, inventory and related operational costs, while waiting to get paid. Hence, more cash is flowing out than coming in.

Fortunately, there are multiple ways a business owner can alleviate much of the stress that comes with this seasonal imbalance in cash flow.

  1. Have a Plan | The most efficient way is to have a plan. Spending decisions should always be made with caution in business. By planning strategically ahead of time for periods where you expect cash flow demands to be heavier, you can be better prepared to handle it financially.
  2. Negotiate with Suppliers | Negotiating supplier credit is another way to reduce cash flow demands. Making purchases on credit allows you to continue to meet customer demand, but with a lower immediate cost, freeing up cash flow.
  3. Leverage Accounts Receivables | Work with a factoring company such as PMF Bancorp. Instead of waiting for accounts receivable to be paid off, invoice factoring allows you to gain immediate access to that cash flow. Not only does this increase your working capital, but it also reduces the risk of unpaid invoices.

The holidays are time to celebrate, not worry about your business’s health. By planning ahead and having the right strategies in hand you can make it through the end of the year on a positive note and start the New Year off right.

5 Factors in Selecting the Right Lender without Wasting Precious Time…

Call us for the latest news on our business funding services.

Call us for the latest news on our business funding services.

Almost all businesses know when they need working capital or a loan, but unfortunately, there are only a few that know where to go to find money. This is not only a problem for your small businesses, but this is an issue that plagues larger companies with sales of $1, $5 and $20 million in annual sales as well. There are 5 factors that can immediately help you to greatly narrow down and select the right lender without wasting a lot of time….

  1. Be realistic:
    For example, if you are a small company and you have been in business less than 3 yrs with limited or no profitability, then a traditional bank is not going to be a good source for a loan or ar financing. If you are a sizable company (but still under $10 mill in sales), you need to have well kept financials… but even with ok performance, you are in what I call in “No Man’s Land” (this is an idiom that of course refers to both Women and Men for my intended use). “No Man’s Land” is where your loan size is too big for the easy to qualify small SBA loan, and too small for the traditional bankers who are mostly interested in loans greater than $4 million. Again, most of America falls into this “No Man’s Land” area so knowing non-traditional bank lending sources is a great way to make sure cash flow is maintained for growth. Knowing about alternative lending sources like factoring companies, a/r financing, invoice factoring, and /or inventory purchase order financing is really important. Most businesses in the US and abroad have little experience with alternative bank sources.
  2. Evaluate Your Collateral:
    Is you collateral real-estate, accounts receivable, inventory, WIP, Letters of Credit, or some other item? For example, if you have a combination of receivables and inventory, then it is recommended to have an Asset Based or ar financing Line which is ideal for providing flexibility during growth periods. If your company has been profitable for at least 3 yrs and has sales above $3 million at least, then an Asset Based Line is the way to go. If you have sales under $1 or $2 million and your credit is good, then an SBA is your best route if your company is not expecting large growth and is free from liens. If you have real-estate then there are many choices if there is at least 30-40% equity in the property. If your company is not profitable, but growing, then you need a non-traditional bank lender that can provide an alternative financing structure like factoring invoices, ar financing, accounts receivable factoring, inventory financing, etc. 1st PMF Bancorp has offered these types of non-traditional invoice factoring or inventory financing lines for years.
  3. Evaluate the Bank Closely:
    Many bankers will gladly welcome your small business to complete a loan application, but few loan applications make it to the finish line so let’s save some brain damage by selecting our bank accordingly. If you have a small community bank that you know or have a currently relationship in the form of a bank account, then they should be the most likely candidate to provide flexible terms to smaller businesses. They will not offer alternative lending like invoice factoring or purchase order financing; however, they will often have SBA programs. These SBA programs often require you to pledge all your collateral and provide a personal guarantee. A personal guarantee is typical but you should get assurances that if they make a loan that you can have your accounts receivable subordinated to another lender for additional working capital as you grow because 99% of banks cannot increase SBA loans significantly to meet a company’s sales when grow expands rapidly. 1st PMF Bancorp has been advising its clients to make sure their receivables are not permanently collateralized when SBA loans are made so PMF can provide additional working capital lines for growth. Finding a non-traditional bank like 1st PMF Bancorp that can provide the ar financing and a traditional lender is optimal for a small business’s growth as it gives the business a layer of longer term debt as well as the shorter term invoice financing / working capital debt that can be used to quickly expand for new customers or opportunities.
  4. Relationship verse Price:
    Everyone I speak to today has a lender pricing story where they brag about how they received a 1/2 percent less from their lender verses the going market rate; however, there is so much more than pricing to a loan or an ar financing line. For example, business loans or account receivable factoring at the lowest rates are great if you can get them, but if your borrowing base or covenants are so strict, then you might end up with the best priced loan that you are never able to use (or that the loan is so limited it does not really help). How good is a cheap $1 million line of credit where you can only draw down $100k? Also, getting a lender with 1/2% less in cost per yr sounds great, but if they don’t lend on inventory (or they are limited in this area), then how does this help your company grow? Remember, 1/2%,1%, or even 3% difference in pricing is really not material to many companies with 30-40% gross margins…just get the money to grow when you need it and then find a better source later. Don’t get stuck in an “Accountant’s World” where a dollar saved on interest is more meaningful than the big picture of growing your company, and increasing its enterprise value which only translates. Often a factoring company charges a little more, but offers a greatly expanded opportunity to increase sales and your company’s enterprise value which far outweighs immaterial extra interest costs you may spend in a year. Alternative bank lenders like 1st PMF Bancorp offers ar financing, invoices factoring and other lines of credit for growth. Start building a relationship that is valuable with the right lender now.
  5. Know Where Your Company is on the Food Chain:
    If your company is a larger firm, then larger lines with more flexibility are in order, but if you are a smaller company, then you need to look to smaller banks and lenders. If your priority is growing sales, then finding a commercial lender with limited credit covenants that can lend on receivables, inventory, and equipment like 1st PMF Bancorp so you are not capped by traditional bank limits and their regulations; however, if you are a smaller company with good credit that is looking for just a small loan, then an SBA Express Loan or SBA 7A loan are great if your needs are fixed and your business is not set to expand too quickly. Banks like Bank of America and small community banks can process SBAs quite well…just remember to ask them for a covenant in your loan that states if you are in good standing that your loan can be subordinated for future additional working capital needs, and then you will be in perfect shape.

Good Luck loan hunting!  For more updates on getting loans and finding the right lender follow us on twitter @pmfbancorp or PMF Bancorp on Facebook

The Secrets to Finding a Line of Credit for Your Business…

Invoice Factoring U.S. and ChinaWhy is it that business I speak with so often say, “…We have been with our bank for so many years, but they won’t make us a loan.” Large traditional banks are designed in most cases for retail banking and corporate lending. There is not much money to be made by making small loans at 5% per year to 1000 small customers. Frankly, the larger banks rather lend one large corporate client $100 million at 3% than a 100 smaller loans. So, how does a smaller commercial bank lender make smaller loans when the larger banks cannot? There are clear reasons why smaller lending institutions can lend to smaller businesses more successfully. Here are some of the secrets to why and how businesses qualify for money.

First a small business owner must rate their business in the A, B or C credit categories in order to know what they qualify for and where to look. This the secret to finding a successful bank lending relationship.

A small business in the A credit category would have a company that is profitable, been in business 2 or more years, has a strong equity position on its balance sheet, and a strong principal guarantee with a credit score of +720. This business would be a good candidate for an SBA loan from $100k to $1 million with sales of approximately $1 to $10 million with not too much difficulty at a smaller, more specialized bank. Traditional loans are typically not available to small businesses even at this level without an SBA guarantee to support their loan.

A small business in the B credit category usually lacks one of the above criteria that an A credit has (as listed above). This places the business in the area of receivable financing (aka invoice factoring) or some other form of collateral based lending (i.e. 2nd TD on business property, inventory financing, etc.). These loans are typically with recourse or limited non-recourse and are highly structured. If your customer base is strong and there is payment records to support trends, then this form of lending can very helpful to growing and graduating to the A credit category.

A small business in the C credit category is missing several items from an A credit criteria and often has other items like tax or lien issues that complicate the lending scenario. A seasoned commercial lender can still place creative financing together. The price will obviously be higher due to the higher risk, but if a small business has cleaned up its act and is on a good sales trajectory with descent margins then seeking this type of lending is a great move to maintain stable working capital and cash flow while the business continues to grow so no sales momentum is lost.

“Providing working capital to businesses that have had a few bumps in the road, but are still growing is challenging for traditional banks. Smaller more aggressive lenders are much better suited to actually lend in this area and they can provide a surprising array of products like receivable financing, inventory financing, invoice factoring, trade financing, PO financing, etc.” states, Stephen Perl, CEO of 1st PMF Bancorp.

By Stephen Perl, CEO

1st PMF Bancorp (USA)

1st PMF Capital (HK)

Author of “Dancing with the Dragon: The Secrets of Doing Business with China” (2012)


Importer Financing & Factoring Opportunities

U.S. importers have been filling the void for many of the products that the U.S. buyers continue to demand with their dollars, and this has presented a niche for new kinds of financing opportunities such as factoring invoices and trade financing.  An interesting side note is that if U.S. buyers just bought $300 more of U.S. products per year, our deficit and manufacturing flight would be solved.

Niche financing for importers has always been around for the large, credit worthy companies in the U.S., but now small businesses can get access to this financing as well.  Letters of Credit have been used by banks for a long time, but a few factoring companies are now becoming experienced at designing trade finance programs for smaller companies, and not just at factoring invoices.

How can a trade finance program help your company grow?  Being able to order larger amounts that the larger US customers are demanding is essential, but cashflow is sometimes restrictive.  Also, sending deposits, without the protection of a letter of credit or a structured purchase, is a dangerous habit as well because there is nothing holding the foreign supplier to making the right quantities, making the delivery dates or other parameters important to your company.

1st PMF Bancorp has been a commercial lender with a specialization in trade finance and factoring invoices for over 30 years.  When you are a small company. having a lender that understands and can be flexible to meet your needs makes all the difference when achieving company’s sale goals.



China’s 3rd Plenum and President Xi’s New Powers

China is becoming more intriguing all the time because as it moves towards a stronger capitalistic economy, the government is apparently consolidating power in their President’s position.  This could be seen as a move for more centralized power, or alternatively an attempt at copying the US’s system and the President’s powers in the US.  It is no secret that the Chinese have modeled many of their systems, roads, infrastructure projects, etc. after the US.  The Chinese feel the US has been tremendously successful and there is no reason to copy any other (however, its only my opinion, but they may want to pass on copying our health care system and retirement system).

In simple terms, what did this Third (3rd) Plenum achieve… the top line statement given after the meeting was that China’s leadership would make more decisive movements toward a free market system, while maintaining a firm central state grip on the overall picture…not sure about you but I am confused.  However, in contrast to the past 2 Chinese President’s,  the 3rd Plenum did appear to have granted President Xi the following new powers:

1.  Control over Military, Foreign Affairs, Intelligence, and Economic Officials (not quite like the US Reserve model)

2. Creation of a National Security Council

3. Control over most of Domestic Security issues

4. Control Foreign Defense without Leadership approval

There are many similarities to the US…too many to comment on but this is probably a good thing as having a President with too little power can create more problems and frustrations so another ally that is aligned with our business interests can only be a good thing for the overall future for both countries and the world.

by Stephen Perl, MS, MBA

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