The following article was taken from a blog by Patrick Zazueta of Huntington Coast Capital, Inc.
Huntington Coast Capital, Inc. was inspired by the 18 years of experience in the banking and commercial finance industry possessed by its owner, Patrick Zazueta.
From the start of his career in 1993, he discovered that small businesses across the country were in need of financing, but for whatever reason, did not qualify for traditional bank financing. He learned from numerous small business owners in New York and LA's garment district the difficulties they faced getting credit and how critical it was to their business.
Patrick later went on to work for community banks and gained hands on experience in bank lending, regulations, and relationship management. As a Vice President, Relationship Manager, he has seen firsthand how devastating it is to small business owners when the bank has to freeze a line of credit due to covenant or other violations.
Circumstances happen whether it be to market cycles, seasonal cash needs, a slowdown in accounts receivable turn, or unexpected capital expenditures.
Factoring Companies are concerned most with your customer’s credit versus your company’s credit for the most part. Sure, they like to see financial statements on your company to understand your business cycle, and the operations of your business, but they are largely concerned with the quality of your accounts receivable.
However, not every client we speak with is successfully placed with an invoice factoring arrangement. Factoring loans, like any other form of financing go through a due diligence process. So, when we are unsuccessful in placing a factoring loan, it usually boils down to one of the following reasons (please note, it is better to divulge the good, bad and the ugly about you and your business up front, because the factor will find out):
Liens, Judgments and Lawsuits
One of the first things a factor does is conduct a background check on you and your business. From their perspective, they are buying into you. Because they do not place a lot of weight on the financial stability of your company, they need to feel comfortable with your background. Judgments, suits, liens, etc. should all be disclosed and discussed prior to the factoring companies finding them in their due diligence process. If you are up front about what the challenges are early in the discussions, they can decide how best to underwrite your request. Conversely, if you withhold some bad history in the hopes they won’t uncover it, there is a bad taste left in their mouth and the credit department will turn down your invoice factoring request.
If you have had a bankruptcy, disclose it. This alone does not always disqualify you. It largely depends on what you filed bankruptcy for (i.e. medical emergency and related bills, divorce, etc. may be acceptable). On the other hand, if you filed bankruptcy to avoid paying your creditors, you will likely be turned down.
Factoring companies provide the most flexible financing available to small business owners. Their decisions are subjective and they operate without the regulations banks have to work within. However, there is a method to the madness! They do not approve every factoring loan request they see and this is mainly due to the fact that the borrower was not forthright in the preliminary discussions. You cannot underwrite around a character issue and lying (or withholding the truth to put it more softly) is a huge blow to a positive credit decision in favor of your factoring loan.
Matrix Equity works in conjunction with companies like Huntington Coast Capital, Inc. and other Institutional Lenders to provide working capital and lines of credit to small and mid size businesses.
If your company needs working capital or could benefit from a factoring relationship and would like assistance in negotiating with factoring companies, please call me directly at 888-481-5133 or by email Info@MatrixEquity.com. We look forward to serving you!
Wilbur Pelt | Matrix Equity