27DecDecember 27, 2019 By Patrick

The Difference Between Bank Asset Based Loans And Private Asset Based Loans

Huntington Beach, CA Owning a business takes a lot of cash on hand. Cash to make payroll, pay rent (or a commercial mortgage), purchase supplies, marketing and advertising, etc. Business owners reach out first to the bank they have their business deposits with to see if they can provide them with a loan. Their bank is a good place to start, and if they can qualify, their journey ends there.

Different types of asset based loans.

Asset based loans can be made against any asset seen on a company’s balance sheet. The common assets used as a collateral for a loan are real estate loans, equipment loans, inventory and accounts receivable. Other collateral considered assets by a lender are purchase orders and supply chain funding lines.

Asset Based Loans Obtained From Banks.

Banks provide asset based loans, but have stricter requirements than the private sector. The first difference you will notice is that a bank will most typically require you to open a deposit account with them in exchange for doing the loan. Depending on the size and type of asset based loan, the bank will require you to switch you entire banking relationship over them as a requirement for doing the loan. Switching your banking relationship is no easy or convenient task.

If deposits are not required, that means that the bank will look to fit you in to an SBA loan program. Banks mainly offer term loans under the SBA loan program versus revolving lines of credit. Loans made against accounts receivable, purchase orders or for supply chain funding are not on the menu for most banks.

The preferred type of asset based loan banks like to issue are for real estate and equipment purchases. The range of your required down payment will depend on the type of loan being considered, your business and personal credit and the amount of liquidity you have on hand post purchase. Most banks set their bottom limit at a 680 credit score or better to be considered for an asset based SBA loan.

Private Sector Asset Based Loans.

In the private sector the whole credit picture is also considered, but not scrutinized quite as closely. The main consideration is the asset quality itself. For example, in an accounts receivable loan, the credit quality of customers, average collection days and historical bad debt write offs are of paramount importance. The private lender will look at business and personal credit scores and evaluate the company’s financial position, however they will also listen to the story. Many business owners have lower credit scores because all of their cash has gone in to their business and this sometimes creates issues meeting their obligations on time. The private asset based lender understands that an asset based loan will improve the company’s cash and allow them the growth opportunity they wouldn’t otherwise have without access to capital. This especially true when considering loans to finance purchase orders or establish a supply chain line of credit.

What Asset Based Loan Is Right For Your Business?

Our advice is to always check with your business bank first. They are the ones that have the experience with your business and it’s always prudent to confirm their ability to assist.

The facts are that most business owners do not qualify for bank loans. This is the reason there is a market for the private asset based lender. Private capital can be used as a bridge or as a permanent financing for those that prefer less oversight from their lending partner.

What Value Does Huntington Coast Capital Bring?

In a word, experience. We have decades of experience in the private capital and institutional capital markets. We navigate our clients through the options, saving them time and when finding the right asset based lending partner for their business. If your business could use some additional capital to purchase equipment, real estate or to finance growth opportunities, we would like to speak with you.

Call us to learn more 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.

04OctOctober 7, 2019 By Patrick

Working Capital. Every Business Needs It!

How long would your business last without enough money to cover expenses? Most businesses fail within the first three years due to lack of enough working capital, and even well established operations can experience cash crunches. Competitors are a constant. How financially strong your business is, will determine how well you can compete.

The frustration for many business owners is this – traditional lending sources either require you to be financially solid before they lend you money to grow or are conservative in the amount of credit they extend to the seasoned business operator.

So where do most business owners obtain the financing they need to grow their business? In short, asset based lenders. There is a 2nd tier of lenders below bank financing that finance purchase orders, equipment needs, inventory, real estate and accounts receivable. Essentially any asset listed on a given company’s balance sheet can be eligible for financing. Their focus is either on the quality of the asset they are financing or the financial strength of the customer placing the order (in the case of purchase order and accounts receivable financing). This approach makes financing growth much more obtainable for business owners.

What about financing for the established companies? A challenge remains here as well. Financing available for the established business owners is often inadequate to meet growth needs. Banks are most typically conservative and provide small lines of credit, even to companies with strong net worth and income. Companies need creative solutions when seeking additional capital and this creativity comes from the non-regulated, more entreprenuerial thinking, capital sources in the market. Could your business benefit from knowing a partner like this?

About Huntington Coast Capital.

Huntington Coast Capital secures funding for companies in a broad base of industries. Our clients come to us to find a more flexible lending partner to meet their growth needs. Many are declined by the bank and are in need of a more creative and entrepreneurial funding solution.

We consult on a wide range of funding options for business owners throughout the United States in the following areas:

Supply chain financing
Equipment loans and lease programs (learn more about our equipment loan platform offered through our subsidiary)
Lines of credit for working capital needs
Term loans for marketing, hiring staff and general expansion needs
Factoring services for accounts receivable financing that also provides for back office credit and collection functions
Purchase order financing
Asset based loans
Business acquisition financing
Inventory financing
Private commercial real estate bridge loans
SBA loans for business and real estate needs

Whether you are a startup or established, in need of $100,000 or $10,000,000 we have the capital partners to meet your needs. Contact us to see how we can assist in taking your business to the next level. To your success!

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!

13SepSeptember 13, 2017 By Patrick

Asset Based Loans In California In Demand!

Huntington Beach, CA: Business owners have been increasingly inquiring about asset based loans in California and nationwide. Frustrated with the banks, they come to us for answers. We have successfully secured loans for inventory purchases, equipment lease and purchase programs, purchase order financing, lines of credit, term loans and SBA loans to name a few. Is your bank making it difficult to get a loan to grow your business? Contact us and explore your options 714-719-8966 or at patrick@huntingtoncoastcapital.com. How far can your business go?

10AprApril 10, 2017 By Patrick

How Will A Rise In Interest Rates Effect Business Owners?

Huntington Beach, CA – How does a change in interest rates effect business owners? Business owners borrower money in order to grow their company’s and expand. Whether the need is for an equipment loan, SBA loan, factoring services, a commercial real estate loan, inventory loan, or asset based loan or line of credit in California or any other state, the cost goes up.

Things That Traditionally Increase When the Fed Increases Interest Rates

The recent rise in the Fed funds rate will likely cause a ripple effect on the borrowing costs for consumers and businesses that want to access credit based on the U.S. dollar. That has an impact across numerous credit categories, including the following:

The Prime Rate: A hike in the Feds rate immediately fueled a jump in the prime rate, which represents the credit rate that banks extend to their most credit-worthy customers. This rate is the one on which other forms of consumer credit are based, as a higher prime rate means that banks will increase fixed, and variable-rate borrowing costs when assessing risk on less credit-worthy companies and consumers.
Credit Card Rates: Working off the prime rate, banks will determine how credit-worthy other individuals are based on their risk profile. Rates will be affected for credit cards and other loans as both require extensive risk-profiling of consumers seeking credit to make purchases. Short-term borrowing will have higher rates than those considered long-term.
Savings: Money market and credit-deposit (CD) rates increase due to the tick up of the prime rate. In theory, that should boost savings among consumers and businesses as they can generate a higher return on their savings. However, it is possible that anyone with a debt burden would seek to pay off their financial obligations to offset higher variable rates tied to credit cards, home loans, or other debt instruments.
U.S. National Debt: A hike in interest rates boosts the borrowing costs for the U.S. government and fuel an increase in the national debt. A report from 2015 by the Congressional Budget Office and Dean Baker, a director at the Center for Economic and Policy Research in Washington, estimates that the U.S. government may end up paying $2.9 trillion more over the next decade due to increases in the interest rate, than it would have if the rates had stayed near zero.

Things That Are Largely Unaffected When the Fed Increases Benchmark Interest Rates

Auto Loan Rates: Auto companies have benefited immensely from the Fed’s zero-interest-rate policy, but rising benchmark rates will have an incremental impact. Surprisingly, auto loans have not shifted much since the Federal Reserve’s announcement because they are long-term loans.
Mortgage Rates: A sign of a rate hike can send home borrowers rushing to close on a deal for a fixed loan rate on a new home. However, mortgage rates traditionally fluctuate more in tandem with the yield of domestic 10-year Treasury notes, which are largely affected by inflation rates.

Things That Traditionally Decrease When the Fed Increases Interest Rates

Business Profits: When interest rates rise, that’s typically good news for the profitability of the banking sector, as noted by investment giant Goldman Sachs. But for the rest of the global business sector, a rate hike carves into profitability. That’s because the cost of capital required to expand goes higher. That could be terrible news for a market that is currently in an earnings recession.
Home Sales: Higher interest rates and higher inflation typically cool demand in the housing sector. On a 30-year loan at 4.0%, home buyers can currently anticipate at least 60% in interest payments over the duration of their investment. Any uptick is surely a deterrent to acquiring the long-term investment former President George Bush once described as central to “The American Dream.”
Consumer Spending: A rise in borrowing costs traditionally weighs on consumer spending. Both higher credit card rates and higher savings rates due to better bank rates provide fuel a downturn in consumer impulse purchasing. (For more, read How Interest Rates Affect Spending.)

11DecDecember 11, 2016 By Patrick

HCC Funds $1,300,000 In Business Loans In The Month Of December

Huntington Beach, CA. During the month of December Huntington Coast Capital secured a $650,000 equipment loan and two SBA loans for $500,000 and $150,000 for a total of $1,300,000 in business loans! The scenarios are outlined below:

$650,000 equipment loan for a southern California contractor – The company was paying a high rate of interest on the equipment they used in their day to day operations – The high cost of financing was impacting their cash flow. They engaged Huntington Coast Capital for their equipment loan needs and we were able to reduce their financing costs by almost half, saving them thousands in monthly finance expense.
$500,000 SBA loan for a growing company in the stencil business – The company produces custom stencils for any design and application. The company had an existing SBA loan and were looking to borrow an additional $350,000 to purchase additional equipment to meet growth demands. Huntington Coast Capital secured a $500,000 SBA loan to cover the equipment costs and refinance the existing SBA loan.
$150,000 SBA Express Loan for a custom glass manufacturer – An established custom glass manufacturer was looking for additional funds for advertising and marketing to break in to new markets and broaden their customer base. They have a profitable business serving general contractors and are looking to expand in to direct commercial work.

Whether your business loan needs are for equipment purchases, inventory or general working capital demands, we can assist. We serve companies of all sizes from startup to established.

14JunJune 15, 2016 By Patrick

HCC Obtains $800,000 Equipment Loan

RECENT FEATURED TRANSACTION:
A Texas-based company contacted our Huntington Beach location regarding an equipment loan. The company was a supplier and installer of large water tanks for commercial and industrial use. The main applications of their product was for rain water harvesting, well water storage, fire water storage and municipal water storage. Their customers ranged from breweries to large farm co-ops to City Municipalities. Their business is growing and their brand is becoming well-known.

The challenge: The company was running in to a ceiling when it came to their growth potential. The supplier they worked with was located in Australia and had minimum shipment requirements and needed cash up front for the orders. The typical sales cycle (from ordering from supplier to delivering and being paid by the customer) could run as long as 4-6 months. This, coupled with net losses from operations as the company went through growing pains, made them unfit for bank financing.

After applying for and being turned down for an SBA loan, Huntington Coast Capital brought in some forward looking, entrepreneurial lending options. The lender ultimately chosen by our client provided for the cash to purchase the inventory by leveraging existing equipment and freeing up cash trapped in the assets of the company.

The result: A cash injection was possible by leveraging the company current equipment and inventory assets which resulted in being able to fulfill the increasing customer orders. Our non-institutional solution will bridge the company for 12 to 18 months and allow the company to make that jump to profitability. They will likely be ready for traditional financing within a two year time period.

If your business could use a cash injection to take your operations to the next level, we would like to speak with you. Click the Apply Button below to inquire about the details.

14AprJune 7, 2016 By Patrick

SBA Loans The Advantages and Disadvantages

The SBA or Small Business Administration is a government sponsored funding program for business operations, commercial real estate and construction projects. Whether you are looking for an SBA loan right here in our hometown of Huntington Beach or anywhere in the USA, an SBA loan may be of value to you.

What is an SBA Loan?

SBA loans are generally described as funds available for working capital or equipment purchases that will contribute to the growth of a company’s operations. Working capital is a broad term covering everything from marketing and advertising to hiring and other capital investments.

The SBA does not lend money directly to business owners. Participating banks originate, underwrite and lend money under the program to qualified applicants. SBA loans made by banks are partially guaranteed by the US government.

Who Qualifies for an SBA Loan?

A business that would qualify for an SBA loan would have the following general characteristics:

a minimum of two years in business
at least two tax returns showing a business profit (more on this later)
adequate financial strength of the business relative to the loan amount being requested
personal credit scores above 690 for each owner in the business
outside collateral in the form of equity in a personal residence (sometimes required)

This is by no means an all inclusive list, but some of the main pre-requisites in qualifying for an SBA loan.

Is an SBA Loan Right for My Business?

SBA Loans are a great source of low cost capital for many businesses. If you can check all the boxes required for an SBA Loan, it is a great way to responsibly leverage your company for growth.

Whether or not an SBA Loan is right for your business has many variables. For example, a popular SBA Loan is the SBA 7(a) Loan. This SBA Loan variety is more commonly offered by banks for companies looking for term debt (lump some of cash – think mortgage) versus revolving credit. While the SBA offers revolving lines of credit under the SBA 7(a) Program, our experience is that banks do not offer the revolving loan as widely as the term debt.

If you are looking for a revolving line of credit for your business, there are more flexible and user-friendly loans available.

What Else Should I Know When applying for an SBA Loan?

Here is where the tax return profits come to play. It is natural for business owners to want to minimize the profit they show on their tax returns for tax purposes. This is an effective way to reduce your tax obligations, but not good when searching for an SBA Loan.

This is because the banks that underwrite the SBA Loan request will look to the tax returns to determine whether or not your business can afford to take on the payments of the new SBA Loan. If you are showing very little profit or losses on your tax returns, you are declined before the process even starts.

Advantages of SBA Loans

The advantages of SBA Loans are simple – low cost source of funds to grow your business. Business owners like the program due to the low cost involved with these loans. In addition, there are seldom pre-payment penalties attached to them.

The banks like the SBA Loan Program because the government is guaranteeing a portion of their exposure which makes the program attractive to those participating banks that are lending the money.

Disadvantages of SBA Loans

The disadvantage of SBA Loans is that they are hard to qualify for. Only the financially strong qualify for SBA Loans. They are accompanied by a fair amount of paperwork and hurdles to clear for underwriting. We have found that roughly half of our SBA Loan submissions make it through the finish line and that is because most are dis-qualified prior to submission.

Closing Thoughts on SBA Loans

We are big fans of SBA Loans and always use them as a starting point when consulting with our clients. If we can get you qualified for an SBA Loan, the rates and terms will be hard to beat. Further, the good news is that there are other forms of financing available should we need to use an alternative source to bridge to a future point where the company may qualify.

If you would like to see if your business would qualify, please call me directly at 714-719-8966.

03FebJune 7, 2016 By Patrick

Huntington Coast Capital Is Off To Its Best Start Ever In 2016!

2016 has started out in a full sprint for Huntington Coast Capital. Through the first four weeks of the year, we have secured $11,300,175 dollars in working capital business loans for our clients. This volume represents the fastest start of any year since our first full year in operation in 2011!

The loan mix was varied and breaks down as follows:

* $5,500,000 business loan for a distributor of private label pastas, spices, and mixes secured by the company’s accounts receivable and inventory.

* $3,200,000 construction loan for a ground up development project in San Diego, CA.

* $100,000 SBA loan for a product development firm.

* $500,000 business loan for a auto transportation company.

* $2,000,0000 business loan for an importer of suits and formal wear for men.

Huntington Coast Capital is pleased to have secured funding for these clients! In each case, the client was in need of a creative business loan to grow their business. The business loan options we brought to the table allowed them to realize the full potential of their company.

If your company could benefit from having a choice of business loan options to choose from, we would like to speak with you! We enjoy playing a small role in insuring that our clients succeed.

To your success!

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