Why Factors say YES when banks say NO

Have you ever heard this from a prospect; “Don’t waste your time, I am not bankable?”

Did you then wonder why a factor would ever consider funding a company that a bank would decline? If you have, believe me, you are not alone (I get asked this all the time). Let me see if I can help clear this up.

Let me begin by defining a strong banking prospect:

• Prospect has been in business for a minimum of 2 years
• Prospect has audited financial statements reveal solid profit margins in the previous 12 month accounting period
• Prospect has steady revenue growth with no “Peaks or Valleys”
• Prospect’s management team is strong with a proven track record of success in the industry
• Prospect has absolutely no bankruptcies or judgments in the past
• Prospect’s business collateral specifically, liquid assets (Accounts Receivable and Inventory) are sufficient enough to cover any risk of default

Now, let’s move on to defining a strong factoring prospect:

• Debtors (clients) of prospect have a positive credit history
• Debtors are multiple – no concentration with any one client
• Debtors will verify that product or service has been received and there will be no setoffs against payments

Can you see the distinction?

While banks make their credit decisions by focusing on the PROSPECT, factors make their credit decisions by focusing on the DEBTOR(S).

Although the comparison seems simple in nature, the impact of this difference is monumental. For example – Will a bank fund a new start up company (No – see point #1), will a factor (Yes); Will a bank fund a company that had loses in the past 12 months (No – see point #2), will a factor (Yes); Will a bank fund a company that is growing rapidly and needs a steady flow of cash to manage its growth (No- see point #3), will a factor (Yes).

The next time a prospect tells you to “not waste your time, I am not bankable”, tell them “I know, we have been waiting for you!”

Timothy J. Sardinia – Mr. Sardinia is currently a Partner with Canfield Capital Management, LLC, a Member of Steelkilt, LLC, a Member of Millennium Automotive Group, a Member of Millennium Legal Funding. Tim can be reached at tim@millenniumfunding.com or by calling 716-204-4800.