International Factoring
By Jonathan Carmel, President of J&D Financial

Global borders are vanishing daily. The clothes that you wear today were probably manufactured in China or another Asian country. Fluctuations in foreign currency exchange rates offer suppliers of goods competitive advantages in those markets that favor certain currencies. Today US companies, with a weaker dollar, can offer goods and services to foreign buyers at a very competitive price with a nice gross margin. US exports are increasing and buyers want credit terms. How do you manage your cash flow and credit exposure to this profitable market?

International Factoring can offer you immediate cash for your receivables and minimize your credit risk. Rather than have your client pay you cash against documents or by letters of credit, you can now offer credit terms and expand your sales. J&D Financial is one of a few numbers of factors nationwide that offers this service. A typical transaction is structured as follows.

1. Credit Insurance – Are your buyers credit worthy? Only sell on credit terms to buyers who have an existing credit history file. A number of credit insurance companies have extensive pay and financial information on overseas buyers. These credit insurance companies will give you a predetermined line to sell against and insure you for this amount in the event of slow or non payment. Either you or J&D Financial can purchase credit insurance for your existing account debtors. Initial Premiums run from $3000 - $10,000 depending on the size and number of overseas account debtors. Contracts are usually based on sales where premium costs can vary for ¼% to 1 ¼% of the yearly sales.
   
   
2. Advance- Advance rates from the factor will vary between 70 to 80% of the face value of the invoice. Invoices, bills of lading and purchase orders are usually required to be funded. On your initial funding with a factor, usually a partial advance will be given and the balance when the buyer receives and accepts the goods. After you establish a track record full funding will occur upon shipment.
   
   
3. Carve outs with Existing Lenders – Most lenders usually will not fund against foreign receivables when they are part of an overall receivable package. An international factor can carve out these foreign receivables with the existing lender by using an Intercreditor agreement that stipulates the factor is in a first position on international accounts and the existing lender is in a first position on the domestic accounts. Most lenders are willing to entertain this arrangement because it keeps the client happy and also offers both lenders additional safeguards in the event there is a problem or default with the receivables.

In addition to factoring US exporters, J&D Financial also factors foreign companies selling to creditworthy US buyers. The above principles also apply to the foreign exporters with one important difference. When factoring a foreign company the US factor must be in a first position on the export receivables. This means that the foreign companies export receivables must not be encumbered, have liens or loans against those specific assets. Legal representation in the foreign country must be obtained to insure the receivables are free and clear. Also proper notification must be given in the foreign countries public registries to tell the world that the export receivables are encumbered by a foreign lender. Factoring laws vary from country to country from Mexico, where factoring is regulated by the Mexican Central Bank and lien filing requirements are quite formal, to Holland where the legal system does not recognize the transfer of a beneficial interest in a receivable.

Jonathan Carmel is President of J&D Financial (www.jdfinancial.com). J&D Financial factors both domestic and international receivables, offers purchase order financing and letter of credit funding... Mr. Carmel has been in the finance business for many years factoring hundreds of small to medium size businesses. Mr. Carmel holds advanced degrees from both Duke University (MBA) and the University of Michigan (MPH) and has written extensively in the finance/economics arena. He can be reached at jon@jdfinancial.com or at 305-893-0300 ext 216.

Can factoring financing help home based and small businesses?
By Marco Terry, President of Commercial Capital LLC

Factoring Basics
Factoring is an innovative method of business financing that allows clients to get an accelerated payment on their slow paying invoices. Traditionally, when a company offers its services to another business, they need to wait between thirty to sixty days to get paid. Although companies that have a large cash cushion in the bank can absorb the cost of waiting to be paid, small and medium sized businesses cannot. This can jeopardize a company’s ability to meet existing payment obligations, or worse, prevent it from capitalizing on new opportunities. This is where factoring can be a very helpful tool. A factor can provide a company with an advance payment on its accounts receivable. The factor then waits to be paid by the clients’ customers, while the client gets use of the funds immediately. The transaction is structured as the sale of a financial right, rather than as a loan. Because of this, the factor focuses more on the strength of the customer paying the receivable than on the financial strength of the client. This makes factoring the ideal financial tool for new, small and emerging businesses.

Factoring and the Small Office / Home Office Market
Traditionally, factoring has been easily available to medium sized and large companies. Furthermore, until recently, factoring was not an option for home based and small businesses. Most traditional factors, concerned with cost and risk, preferred to focus on larger clients. Recently however, a new trend and type of factor has emerged. This is a new breed of Small Business Factoring companies (also known as “Small Ticket Factors”) that specialize in working with clients that have less than $200,000 in annual revenues. These new companies are happy to work with clients that can only factor a few thousand dollars per month, but can also provide higher working capital lines when required. Because factoring helps the client gain a more solid financial footing, small clients tend to grow significantly and at a faster rate than without financing.

What services can you expect from a factor?
Although most clients expect their factor to supply them with money, there are a number of other services that the factor provides. More often than not, these are included in the factoring fee or are provided for a minimal cost. A factor can be a great resource that acts as an outsourced accounts receivables department and provides:

• Invoice Pre-Funding: Factors can purchase your slow paying invoices and provide necessary cash to your business.
• Invoice Processing/ Cash Management: Factors will process payments and transfer funds electronically to your account. This streamlines cash flow and reduces the time you or your employees spend going to the bank and tracking down payments.
• Invoice Collections: Factors will call your customers (on your behalf) and make sure they have received invoices and have scheduled payments, thus expediting collections. They will also notify you of any issues requiring your attention.
• Credit Analysis: Factors can provide you with a credit analysis of your customers. They can advise you on the credit risk, helping you minimize bad debt exposure.
• Reporting: Factors will send you regular invoice aging and financial reports. These help you manage your company better.

Factoring Business Case
There are two types of businesses that can benefit from factoring. It can help businesses that have good prospects but have trouble meeting their monthly operating expenses due to slow paying customers. Factors can also help businesses that can no longer grow, because their funds are tied to slow paying invoices. Turning away business because a contract is “too big” is a sure sign that factoring can help. Regardless of the reasons for factoring, a business owner must make sure that the business is profitable enough to benefit from factoring. Factors operate by purchasing your invoices at a discount, which can range from 4% to 8%, depending on a number of criteria. Because of this, businesses that have profit margins of 30% or more are the best suited for factoring. Businesses with smaller margins, risk reducing their profitability and potentially jeopardizing their operations.

About the Author
Marco Terry is president of Commercial Capital LLC (www.ccapital.net), a leading small business factoring company located in South Florida. He can be reached at subs@ccapital.net or at (786) 206 4722.

Conduit Lending: “Mastering the Beast!”
By Ted A. Taylor, Senior Commercial Lender
First Flagler Mortgage & Finance

Commercial lending has become more and more competitive as our loan markets have expanded over the last 10 years. It seems as though every company that tries to handle deposit accounts now attempts to be lenders as well. Who would have thought that brokerage companies or life insurance companies would be lending moneys? Today if you’re not lending funds then you won’t survive in our diverse financial world.

When it comes to commercial loans, Conduit lending is the Cadillac of the bunch. These loans are the most competitive and usually provide the guarantor the most advantages. That’s right, I said guarantor not borrower. This is because conduit loans are reserved strictly for income producing leased properties. That means the majority or all the income to support the loan is driven directly by the property. Therefore, the building and the property becomes the borrower. In this regard, the customer who is the guarantor has either no or very limited liability to the loan. This is called non-recourse lending.

This feature of conduit lending provides a major advantage over conventional commercial funding. Helping our customers avoid additional business liabilities is the main core of our jobs as financial advisors; no matter what capacity we fulfill in this equation. Telling our customer “John Smith” that he has no personal liability when he purchases his 250 unit $12,000,000.00 apartment complex in Miami Beach is a powerful statement. The next step is to help our customers determine how to get the correct loan for their purchase or refinance.

It comes down to what they want, when they want it, and how they will use the property. In our world of commercial lending, the request revolves around the subject property. Just like with residential lending the borrower dictates everything, with commercial lending the subject property dictates everything. The borrower or guarantor does play a role in underwriting or approving a loan but the bottom line is the subject and how it holds up to the market surrounding it. Therefore, the best commercial loan programs are allocated to properties that have the greatest supporting income without the borrower’s involvement. “It’s all about the lease”, as one of my experienced underwriters always says.

The tenants in a commercial property are the life blood of the loan process. Everything revolves around them. Who they are, what they are, how long they will be there, and how long they have been there. These are the steel beams we use as lenders to construct a commercial conduit loan. The leases are the tools the tenants use to support the loan. This leads us to the types of properties that can qualify for conduit loans.

This process is where an experienced lending company such as First Flagler Mortgage & Finance separates itself from the everyday lender. We feature an advanced array of commercial products especially Conduit loans. Our long term relationships with these underwriting firms gives us the advantage to provide smoother processes, shorter time lines, and most importantly, better price models to our customers.

Ted A. Taylor is Senior Commercial Lender for First Flagler Mortgage & Finance. First Flagler Mortgage & Finance offers an assortment of commercial mortgages for real estate secured properties nationwide. The main focus nationally is with multifamily apartment buildings and a series of other real estate such as; mixed use, office, retail, office/warehouse, light industrial, and some owner occupied properties. Mr. Taylor has been in the finance industry for the past two decades underwriting business opportunities for both the smaller and the super large properties alike. His firm is a located in South Florida and can be reached at Ted@NMB.CC or (877) 659-1390 toll free.