08JanJanuary 14, 2020 By Patrick

3 Things Needed To Qualify For An Asset Based Loan.

Huntington Beach, CA – Asset based loans can be made against any asset on a company’s balance sheet. These include accounts receivable, inventory, equipment, real estate and even off balance sheet items like purchase orders. However, simply having the asset is not a guarantee that you will be approved for a loan.

In order to improve your chances of being approved for an asset based loan, you need to have at least two of the three of the following:

Credit
Cash Flow
Collateral

There are different forms of asset based loans and which two hurdles you will need to clear will change depending on the type of loan you are looking for. Let’s take a closer look. The first benchmark in many asset based loan reviews is credit. This refers to both your personal and business credit rating. In general, a credit score of 680 or better is required of your personal credit. Business credit is a little more subjective, but primarily entails your payment history, past judgments and IRS records. The asset based lender will want to know that you are running your company well by paying your suppliers on time, managing your legal recourse exposure and paying your taxes.

In an invoice factoring arrangement, personal credit is not of that much importance. The majority of the credit decision rests on the financial strength of the customers. Because the lender collects all customer payments through a controlled lock box, the lender has more control over the repayment of the loan. The collateral in this case is the invoice itself and the cash flow is also manged through the lock box. Two of the three requirements are met.

In an asset based business loan, personal and business credit along with cash flow are most important in companies with low levels of assets such as staffing companies, law firm and accounting offices. The collateral taken when lending to service companies is covered under a “blanket lien” of all company assets. However, there are not a lot of hard assets owned in a service company. The focus in this case shifts to the personal credit of the owners and how profitable the business is. The more profitable, the higher the cash flow and the more cash available to pay the company’s debts. This said, loaning to service companies sometimes requires that outside collateral be required, such as a lien on a personal residence or investment property, if available.

In summary, if you have the collateral for an asset based loan you need either the cash flow or credit to compliment the loan request to increase the chances of approval. While higher in cost than traditional financing, there are lower barriers to being approved and less financial scrutiny of your business.

If your company could benefit from an asset based loan, we would like to speak with you and bring the best options to the table.

To your success!

Patrick Zazueta
Huntington Coast Capital, Inc.
714-719-8966

19DecDecember 19, 2019 By Patrick

What An Asset Based Loan Can And Can Not Do For You

We occasionally receive calls from people who are looking to buy a business. The advice when seeking an asset based loan is always to target a company with at least some assets. Service companies such as accounting or legal practices for example, typically do not have hard assets that they use on a daily basis. This disqualifies the possibility of an asset based loan assisting in the purchase of the company.

What assets do lenders like to use as collateral for their loan? Essentially, any asset found on a company balance sheet can be used as collateral for a business purchase. These assets include accounts receivable, inventory, equipment and real estate. Ideally, a company has more than one of these available to be used as collateral for the lender.

When dealing with a new business acquisition loan request, the first course of action is to explore the SBA loan program and see if you can qualify for a government insured loan. The advantage of this loan is the low down payment of 10 percent required from the buyer. The disadvantage is that the SBA loan program is difficult to qualify for. The underwriting guidelines review the target company tax returns to ensure that the company can take on the additional debt used in purchasing the business. Tax return analysis is the most conservative form of cash flow analysis because everyone looks to minimize profits on their tax returns to avoid paying high taxes.

Secondly, the SBA is also required to take outside collateral when making a loan. This usually means a 2nd position on the buyer(s) residence. Not all applicants own a home, or if they do, have equity to offer in the home. The psychological effects of placing your home as collateral can also be a bit intimidating.

If the applicant can not qualify for an SBA loan, there are private money solutions available. Asset based lenders outside of the SBA program are a bit more flexible. They look at the collateral of the business and see what cash can be taken out of the existing assets. For example, if a company owns equipment and real estate, can those assets be leveraged and applied toward the purchase price? Another popular way of purchasing a business is through factoring the accounts receivable. Invoice factoring companies are asset based lenders focused strictly on the accounts receivable of the business to be acquired. By factoring the accounts receivable, they can make additional cash available for the purchase. For example, if a company has $1,000,000 in open accounts receivable a cash availability of up to $850,000 can be made available for the purchase.

The last piece is what is referred to as a “seller carry back.” This is simply an amount of the purchase price that the seller agrees to accept over the course of a payment plan agreed to between buyer and seller. Asset based lenders view this as equity, but also prefer that the buyer has cash to bring in to the purchase. Cash investment from the buyer is important because it keeps them invested in making the acquisition a success. If the buyer has no capital at stake personally, it is easier to walk away from a failed acquisition. Buyers prefer 100% financing and lenders want some “skin in the game” in order to keep the borrower invested.

Asset based loans can make your business acquisition goals a reality. However, buyers need to be realistic in their expectations. If a buyer has zero capital to put down towards the acquisition or the company targeted for purchase has zero assets, the likelihood of success is very slim.

Advice: if you are looking to acquire a business using mostly outside capital, make sure the business has hard assets and you have a portion to apply to the purchase price. What was not mentioned previously is buyer experience. You should also have some experience in the industry your acquisition is in. For example, purchasing a repair shop and have adequate prior experience as a mechanic.

If you would like to talk about acquiring a business, give us a call 714-719-8966.

To you success!

Patrick Zazueta
Huntington Coast Capital, Inc.

28OctNovember 12, 2019 By Patrick

Can A Factoring Company Help My Business?

Blog articles discussing factoring companies, factoring loans, invoice factoring and all things related.

Most of the small business owners we speak to would love to be approved for a bank loan or partner up with the coveted “equity investor” and ride off into the sunset. The reality of it, however, is that very few small businesses qualify for traditional bank financing and do not meet the requirements equity investors look for.

There is a gap in expectations between what small business owners want and what private investors and banks want. What are they? Summarized below:

Small Business Owner – “I wish to become wealthy by using someone else’s money at a very low rate of interest and prefer not to personally guaranty the loan.”

Investor/Bank – “I want to lend money in a nearly risk free scenario and gain a handsome return on the capital invested.”

The end result is the “Golden Rule” or those the rule that states those with the gold make the rules. It is not uncommon to reach a stale mate after months of negotiations as a result of the gap created by these polar opposite ideals.

What we have found is that the conversation (if the business owner is looking to fund variable expenses) usually migrates to factoring company solutions or an asset based loan. Why? Because factoring companies provide easier access to capital and focus on your customer’s credit. Does that mean they aren’t concerned with their borrower? Not exactly. Both borrower credit and customer credit are important in the factoring companies eyes, but not to the same degree. If you sell on net 30 terms and invoice your customers, chances are you can obtain the funding you need with a factoring company.

The profile of an average business that is approved for factoring has some of the following challenging characteristics:

losses and/or negative equity
business owner not willing to provide a personal guaranty
start up or under two years in business
internal financial statements
contractors
tax liens or past due tax payments
contractors
poor record keeping

This is not a complete list, but shown to demonstrate the flexibility of factoring companies over traditional lenders. As your business grows, your factoring charges will decrease as the factor’s main interest is to grow with your business. We have some clients that choose to stay in their factoring relationship for the ease of use and minimal financial reporting requirements.

Factoring companies finance your operating capital needs, manage your accounts receivable and stay out of the way and let you run your business.

If you have questions regarding whether or not factoring is right for you, please call us for a free consultation 714-719-8966.

To your success!

Patrick Zazueta | Founder | Huntington Coast Capital, Inc.| 714-719-8966

24OctOctober 24, 2019 By Patrick

What Is Your Invoice Factoring Rate?

What is Your Rate?

This is the main question when searching for a commodity finance product such as a commercial or home mortgage. Let’s face it, if I am refinancing my home mortgage, I do not care about the customer service of the mortgage company because I expect them to competently manage my mortgage needs. Further, I would not pay more for a perceived better customer service experience. My main concern, as with all of us when shopping for a mortgage, is rate.

However, in the entrepreneurial lending world, things are much different. For example, as a business owner looking to deliver on a sizeable purchase order you have been pursuing for months, cost is not the primary concern. Availability of cash is. This is because if you fail to deliver on your first purchase order, you will likely never receive another one from the same customer. Your reputation on being able to deliver is what keeps the orders coming in.

Asset based loans, such as invoice factoring, solve most liquidity problems for B2B business owners. We deal with business owners on a daily basis that are under extreme timeline and performance pressure from a customer they have been pursuing for months. Once the opportunity finally comes, they simply must deliver! They view their invoice factoring partner as a team member versus just an asset based lender. Because without the factoring company, they would not be able to deliver on their customer orders.

Our asset based lending sources need to earn a return that is commensurate with the risk they are taking. It is a return that will both assist the borrower in their growth goals and earn the lender enough to justify the risk of capital. A flexible invoice factoring loan that allows the borrower a chance to expand their top line revenue where one did not exist before through traditional financing avenues.

So, the rate discussion is obviously something that is covered, but not nearly as important as it is with commodity lending. Opportunity cost, or the cost required to earn higher profits for the company, is of primary importance in asset based lending. Invoice factoring is the most commonly used forms of asset based loans.

Asset based loans can also be secured against equipment. Click h ere to learn more about our sister company, EquipmentFinanceQuotes.com.

If your business could use a flexible invoice factoring company to grow and meet your full potential, we would like to speak with you!

To your success!

Patrick Zazueta | Founder
Huntington Coast Capital, Inc.

30AugAugust 31, 2019 By Patrick

Asset Based Loans. The Difference Between A Factoring Loan and a Line of Credit

Huntington Beach, CA Asset based loans cover loans secured by any assets on a company balance sheet. For example, a loan secured against accounts receivable, inventory, equipment and real estate are all generally considered asset based. There are asset based term loans and asset based revolving loans. Term loans would cover real estate and equipment while revolving loans would be secured against inventory and/or accounts receivable. For more information on asset based loans secured by equipment, please visit our sister company Equipment Finance Quotes at www.equipmentfinancequotes.com.

For discussion purposes today, we will be focusing on asset based loans secured by accounts receivable. These loans are commonly referred to as factoring loans or accounts receivable factoring. Let’s get started.

What is accounts receivable factoring?

When a company factors their accounts receivable they are taking an advance on the invoice that was created when they sold on open terms to their customer. The transaction is almost always between two commercial entities versus sales made directly to the consumer.

These factoring loans are taken to improve company cash flow by speeding up the collection cycle. Without accounts receivable factoring, many companies would go out of business waiting on customers to pay them. Companies have daily cash needs and if you have slow paying customers, it can seriously impact your cash flow and your ability to meet your overhead burdens.

Factoring loans are an advance on an invoice to a customer. While this form of financing is popular across many industries you may be surprised to hear that a factoring loan is not loan at all. From a legal perspective it is a Buy and Sell Agreement. This is because the factoring is purchasing the invoice from the customer for a period typically up to 90 days.

The loan is paid back when the customer pays. The customer payments are directed to a separate lock box controlled by the factoring company. The customer payment is applied first the advance made against the invoice which, is typically around 80 percent, and the remaining 20 percent is remitted to the client minus the fee for the factoring service. The fee will be based on the amount of days it took to collect the payment on that particular invoice.

Aside from the improvement in cash flow realized by using a factoring company, there is another benefit. Because factoring companies manage the collections on accounts receivable, they are able to maintain accurate and reliable records of payments from customers. Factoring companies essentially outsource this function of the back office management. This is a big savings for the company and savings get larger the larger the company factoring their invoices gets. Credit and collections is a big part of back office responsibilities for any business selling on terms to their customers. Factoring companies completely outsource these functions saving the company salaries, benefits and down time from sick days you would expect with hiring an employee direct.

What is a Line of Credit?

A line of credit against accounts receivable is a revolving loan against the balance of accounts receivable. Typically the advances are made bi-weekly or monthly depending on the cash needs of the business. Unlike a factoring loan a revolving line of credit only provides for financing against the accounts receivable without the back office management associated with factoring loans.

Which is better for my business? The decision on whether to select a factoring loan or a revolving line of credit depends on many variable. The argument in favor of factoring companies is that they provide both capital and back office management to the company. A line of credit is typically lower in interest expense, but harder to qualify for.

Qualifying for a line of credit is a more thorough process. The balance sheet of the company is checked for things like positive working capital, income and retained earnings. A company that is deficient in any of these areas is rarely approved for a line of credit. When applying for a similar line through a factoring company, the process mainly focuses on the financial strength of the customer.

Conclusion

Both a line of credit and a factoring loan can benefit your business by improving available cash flow to meet overhead requirements. The option you choose will rely on what is most important to your business.

Could your business benefit from either a line of credit or factoring loan? If so, we would like to hear from you.

To Your Success!

Patrick Zazueta
Founder | Huntington Coast Capital
714-719-8966

08MarMarch 8, 2019 By Patrick

Why You Do Not Need Good Credit For An Asset Based Loan

Huntington Beach, CA

In the lending world, so much relies on personal credit as part of the analysis. Strong personal credit is something not everyone has, fewer than you think in fact. As business owners, when payments are delayed, you are forced to delay your payments to suppliers. However, because your business income is your primary source of income (in most cases), this means personal obligations can also be delayed. Timely payments on items such as your personal mortgage payments, electricity bill, car payments, and so forth all attribute toward your credit score. Delays in revenue and income from your business can quickly effect your personal life and negatively impact your credit score. A poor credit score makes it nearly impossible to be approved for additional credit.

Asset based loans come to the rescue in these cases! Asset based loans can be used for either real estate or business loan purposes. Let us explore below.

Asset Based Loans For Business.

The company balance sheet reflects all the assets of a business (remember assets, minus liabilities equals equity?). Assets that can be used as collateral for an asset based loan are accounts receivable, equipment, inventory, and real estate (more on asset based real estate loans below).

Accounts receivable are payment obligations from customers for goods purchased or services performed. An accounts receivable invoice reflects the amount due and when payment is expected (usually with 30, 60 or 90 days). These invoices are considered assets and can be used as collateral for a loan.

There are two types of asset based loans available against invoices and those are factoring loans and an asset based line of credit. A factoring loan is a buy sell agreement where the factor provides and advance against the face amount of the invoices to improve the cash flow of the business. Factoring loans are more than just an advance. In a factoring arrangement the factor manages the back office and credit and collection functions for the client. Outsourcing the back office functions is often more cost effective than hiring internal staff. For more information on factoring loans click here.

An asset based accounts receivable line of credit provides an advance against accounts on a total availability In this type of arrangement the lender looks at the accounts receivable aging and advances against the total balance outstanding. There is no back office management involved in an asset based line of credit and as such, the rates are a bit lower.

Asset based loans against inventory and equipment are just as you would expect. The lender advances against the value of the collateral. Proceeds are used to increase working capital and assist in growing the business. Equipment loans have been a major source of growth for us in the asset based loan category. For more information on this type of loan please visit our sister company Equipment Finance Quotes.

Asset Based Loans For Commercial Real Estate.

Commercial real estate transactions also use asset based loans on a broad basis. If you have a traditional property type and have plenty of time to close using a bank is your best bet. High scrutiny in underwriting translates in to lower rates although the process can be tedious.

Asset based loans in commercial real estate are used as bridge loans to acquire property. Scenarios where time is of the essence or where a property requires creative underwriting, fit well with asset based commercial loan requests. Virtually all property types are considered and the process is much faster and much less document intensive than traditional bank loans. For more information on asset based loans for commercial real estate click here.

You noticed that I did not mention personal credit in any of the explanations above. This is because it does not come in to the analysis to any important degree. The only exception to this is if the borrower has a negative mark on his credit where a lender providing a similar loan took a loss on that loan. Poor credit due to inquiries, slow payment of personal obligations, charge off notices, default on credit cards and the like rarely come in to play. The main focus is the quality of the asset being used as collateral.

I hope you enjoyed reading this. If your business could use an asset based loan or if you need an asset based loan to acquire commercial real estate, give us a call at 714-719-8966.

To your success!

Patrick Zazueta | Managing Director
Huntington Coast Capital, Inc.

28JulJuly 29, 2018 By Patrick

Huntington Coast Capital Secures $300,000 Factoring Line Of Credit

Huntington Beach, CA An advertising company is the latest example of our asset based loan success stories! The company specializes in Social Hotspot/WiFi Advertising. Their slogan, WiFi is Smart. Phones are Smart. Is Your Advertising Smart? says it all. Their ability to target the audience of their clients with real time advertising sent to the target customers cell phone, is a powerful and engaging marketing concept. They can target age, gender, interests, location and more, to drill down and put the appropriate ads in front of people that would have the most interest. Targeted mobile marketing is the wave of the future in advertising!

The Challenge: Like most of our clients, they were growing quickly and struggling to keep up with the day to day working capital needs of the company. They needed an asset based loan secured by their accounts receivable to speed up their cash cycle. However, this was a more difficult funding request due to the fact that they bill their customers ahead of services rendered. I would estimate that 99 percent of the asset based loan providers that are lending on accounts receivable need to finance the invoices after the service or product has been delivered. We literally spoke with over a dozen companies to discuss a factoring loan for this client. After several attempts we found success with a progressive and forward thinking asset based loan lender. They secured the working capital loan they needed and can now grow the company without worry of running out of cash to support their growth!

If your company could use an asset based loan for your business or an asset based loan secured by commercial real estate, we would like to hear from you! We enjoy these success stories and would like to feature your business in the next one!

To your success!

Patrick Zazueta | Founder
Huntington Coast Capital, Inc.
714-719-8966 direct

09AprMay 19, 2018 By Patrick

HCC Secures Asset Based Loan For Importer Of Baby Bedding And Gifts

Huntington Beach, CA: Huntington Coast Capital secured a $1,250,000 asset based line of credit against accounts receivable for a company in the baby bedding and gift industry. The company was able to secure an asset based line with additional financing in the form of purchase order funding, another form of asset based loan program.

Their current lender was more conservative than the funding we secured for them. HCC was able to provide them with an asset based solution that delivered more capital availability to grow their business. Their asset based loan availability grew from $750,000 to $1,250,000 allowing them to fill more orders from their major customers!

Could your business benefit from an asset based loan? Huntington Coast Capital secures asset based loans in California and across the nation. Give us a call to see how we can assist your business.

To your success!
Patrick Zazueta
Huntington Coast Capital, Inc.
714-719-8966

26FebMay 19, 2018 By Patrick

Asset Based Loans Versus Bank Loans. Which Is Better For My Business?

Huntington Beach, CA: Our clients come to us with an asset based loan or financing need that almost always is required in order to grow their business. If you are like most business owners, cash flow is tight and if you receive a big order outside the normal course of business, it could be challenging coming up with the cash to cover the cost of goods and deliver the product. Your cash need could also be to finance additional equipment and require an asset based equipment loan in order to meet the increased capacity required to fulfill a contract.

Traditional banking places the emphasis on the cash flow and financial strength of the company, the borrower. They are primarily concerned with how financially solid the company they are lending to is. This is good practice, and it makes sense that the companies that the banks deal with are in good financial health. The obstacle to clear however, is that most companies are leveraged to a high degree and can not meet all of the required ratios banks look for when making a credit decision.

If your company is growing quickly and every dollar is going back out the door to cover ongoing working capital needs, it is likely that you will not meet all the requirements of bank lending. For example, banks look at the leverage ratio of the company. This ratio is figured by dividing the total debt of the company by the equity of the company. Equity being the total assets minus the total liabilities. If you have more than 3 or 4 times the liabilities as you do equity, banks will shy away from offering you more credit for fear that your profits and company cash flow will not be able to pay off the new debt. Again, a prudent way to look at things, but the problem is that most borrowers do not qualify.

The advantage to bank lending is the cost. If your company can qualify, then banks will be able to offer the lowest borrowing rates.

The other option are asset based loans. Asset based loans have a broad spectrum of categories. An asset based loan can be used for commercial real estate purchases, inventory loans, equipment loans and purchase order financing to name a few. In an asset based loan, the lender is looking at the asset being used as collateral in the transaction. For example, if your company received a large purchase order and needs additional cash to pay the upfront costs or deposit required by the supplier, and asset based loan is a good option. The asset in this instance is the purchase order itself. Purchase order financing is often accompanied by a factoring loan. Factoring loans are asset based loans secured by the invoice sent to the customer versus the purchase order sent to the supplier. For more information on factoring loans click here.

In our experience, business owners are qualified for asset based loans more often than bank loans. We explore each option as appropriate and the obvious choice is always revealed in the end. Our clients like the unbiased consultation and industry insight we bring to the table. Because we are not lending our own money and acting in a consultant capacity, we are able to align ourselves on your side of the table and deliver the best options for you and your funding needs. Additionally, in the majority of cases, our services are free to our clients. Our lender network compensates us for bringing them asset based loan opportunities.

If your business would benefit from an asset based loan or equipment loan, give us a call. My direct line is 714-719-8966.

To your success!

16JanJanuary 16, 2018 By Patrick

Huntington Coast Capital Secures $400,000 Equipment Loan For Southern California Manufacturer

Huntington Beach, CA A $400,000 asset based loan secured by equipment was obtained for a long time Huntington Coast Capital client. The company came back to Huntington Coast Capital for some additional equipment loan needs for their expanding business. The assembly line equipment will enable them to meet growing customer orders. The asset based loan secured exclusively by the equipment offered better terms than other equipment finance companies and even the equipment supplier’s terms!

The production manager said, the new equipment will allow us to deliver the additional orders being requested by our customer and enable us to deepen our relationship with them.

Asset based loans are a great way to leverage specific collateral for a loan. Equipment loans and factoring loans are great examples of this. In factoring loans, the asset being pledged is the accounts receivable of the company. Business owners in need of cash flow to sustain operations often turn to a factoring loan for the flexibility, speed and fewer restrictions involved in the loan agreements. When compared to traditional bank financing, asset based loans offer a more user-friendly experience and allow you to grow your business without the bank hassle.

Could your business benefit from an asset based loan? Are you looking for a less complicated lender experience? Through our network of lenders throughout the United States, we have most every business loan request covered. To learn more, give us a call 714-719-8966.

To your success!
Patrick