Alternative Finance
Solutions
Kaplan Financial Consulting Group, LLC
Copyright © 2012
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Credentials
 MBA
in Finance
 Adjunct Faculty
 Former Financing Client (as Corporate
Controller and CFO)
 KFCG – Business Finance Consultants
and Loan Brokers in PA, NJ, NY, FL
 Over 150 Alternative Lenders in our
network
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Alternative Finance Advantages
Bank
Non-Bank


Securities





Maximum of 65% of eligible
accounts receivable
Equipment


50% advance per Margin Loan
Accounts Receivable
50% of either Book Value or
Liquidation Value
Real Estate

Cash out Refi 65-70%

Purchase 65-80%
Securities

Accounts Receivable


Generally a maximum of 85%,
maybe 90% at times
Equipment.


70-90% advance per Pledged
Asset Loan
As much as 100% of orderly
liquidation value.
Real Estate

Cash out Refi 85-90%

Purchase 75-90%
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Alternative Finance Solutions
Equipment
Leasing
Trade Financing
Merchant Financing
Factoring
Purchase Order
Financing
Unsecured Business
Loan
Pledged Asset Loans
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Equipment Leasing
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Leasing Terms
Lease: Monthly rental payments for a specific
number of months
Lessee: Uses equipment and pays rental
payments
Lessor: Pays for, owns the equipment; takes risk
Vendor: Sells and supports the equipment
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Own Or Lease?

Companies don’t make money by owning
equipment; they make money by using
equipment.

Own assets that hold value or increase in value
 Rent assets that decrease in value.

Equipment lease is a long-term rental
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Lease Criteria
Item must be removable, resalable in event of default
Must be income producing or cost reducing in core
business
Term must not exceed economic life of the equipment
Lessor holds title
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Two Types of Leases
Operating
Lease
Capital
Lease
Off balance sheet
On balance sheet
as debt
Pay for use
Pays for eventual
ownership
Tax Benefit
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Operating Lease
Best used when:

Equipment is replaced regularly


Replaced in less time than it takes to depreciate the
equipment
Due to obsolescence or wear

Manage balance sheet debt for a growing
company

Does not want eventual ownership

Example: Office computers
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Capital Lease
Best used when:

Lessee desires ownership

Equipment won’t become obsolete

Equipment maintains value well

Resulting balance sheet debt will not harm the
company

Example: Industrial equipment
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Purchase Options
Operating Lease

FMV Purchase Option


Return at end of lease term, or
Purchase at the FMV or 10% of the
original cost of equipment at end
of lease
Capital Lease

10% PUT (Purchase Upon Termination)


Lessee is obligated to purchase for
10% of the original purchase price
$1.00 Purchase Option
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Lease vs. Bank Loan
Lease
1 month advance rent
Loan
20-50% Down
Payment
Manage
obsolescence
Obsolescence
Can be 100%
Deductible
Calculate interest
and depreciation
Off Balance Sheet
On Balance Sheet
Many equipment
items
Fewer items
Less Documentation
Full Loan Package
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Accounts Receivable Financing
Solutions
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Purpose Of AR Financing
Finance the day-to-day operations of the company while
waiting for business customers to pay their invoices
•
•
•
•
Fund Payroll
Pay suppliers and vendors
Space rent, utilities
Other regular payments that are due as a result of normal
business operation
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Factoring
The discounted sale of accounts receivable
to raise cash for daily expenses
Not credit
driven
Finance
Better
day-to-day
than a
Simpler to
business
loan, for
use than a
expenses
many
credit line
without
growing
debt
companies
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Factoring Facility
Client invoices customers for goods or
services
Factor buys eligible receivables from client;
advances 70%-to 90% of invoices, most
commonly 80%
Factor collects the invoiced amounts from
the Account Debtors (client’s customers)
Factor pays it’s client for balance of invoices
not advanced, less its fee for service (1.5 –
10%)
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Factoring Terms

Advance Rate: % the Factor will initially advance for
eligible invoices (70-90%)

Reserve: amount the factor will hold back until
invoices are paid (inverse of Advance Rate)

Discount Rate: Factor’s fee (1.5% - 10%)

Turn: Average days customers take to pay their
invoices.

Notification/Non-Notification: To inform or not to inform
customers

Recourse/Non-Recourse: Whether or not your client is
required to buy back uncollected invoices.
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Bank Line Example
$200K AR
$100K eligible (aged under 90 days)
$50K aged 1-30 @ 65%
$30K aged 31-60 @ 55%
$20K aged 61-90 @ 45%
Less Interest @ 0.5%/mo.
Total
Net advance %
=
=
=
=
=
=
32,500
16,500
9,000
(500)
57,500
57.5%
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Factoring Example
$200K AR
$100K eligible (aged under 90 days)
$100K @ 80%
Less 3% fee
Total
Net Advance %
=
=
=
=
80,000
(3,000)
77,000
77%
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With Factoring Facility…

No balance sheet debt
 Smaller, less expensive accounting function



No monthly reporting to lender
Factoring company reports to client every month, or in
real time.
Factor becomes the company Credit & Collection
Dept.

Client gets to have a complete professional commercial
credit facility, which he/she could never afford to hire.
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With Factoring Facility…

Allows business owner and staff to:



Concentrate on producing products and services
Getting and keeping customers
Without having to engage in administrative
activities in which they have no skills, no interest.

Enables client company to greatly expand
market area and efforts, without having to
worry about whether or not customers will
pay.
 Example: Start-up Home Health Care Agency
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Cost Analysis of Factoring
Is it worth 2%
to pay net 10?
(Probably
YES)
Is it worth 5%
to get paid
COD?
(Probably NO)
Is it worth
2.5% to get
paid the next
day?
(Probably
YES)
Similar to cost
of accepting
credit card
payments
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Purchase Order Financing
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Purchase Order Financing
Company receives large order
PO funder advances funds to produce goods,
accepting production risk
Merchandise shipped to customer, invoice cut
by company
Factor purchases invoice, accepting collection
risk, takes out PO funder
Factor receives invoice payment from account
debtor, remits reserve (less fee) to client
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Result of PO Financing
Customer gets to accept orders otherwise not possible
Company can grow beyond what a bank would allow and
enable
PO Financing can be advanced as a Standby Letter of
Credit for importing of merchandise
Example: Bedding manufacturer with upside-down B/S
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Qualifications
Must reflect
a
reasonable
profit
margin
May
finance
purchase
of finished
goods or
WIP (more
expensive)
Order will
be shipped
all at once.
This
financing
not
available
for
inventory
on shelf for
future sale.
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Trade Financing
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Trade Financing
Client provides PO and Sales Contract
to funder
Funder obtains receivable insurance
at clients cost
Funder finances product obtained
from offshore supplier
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Trade Financing Process
Standby Letter of
Credit (SBLC)
Offshore
Supplier
Provides
Insurance
Trade
Financier
Produce and Ship to Client
Sales Contract
Client
Customer
Ship to Customer
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Merchant Financing
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Merchant Cash Advance
How it works
Funds are advanced
against future credit
card receipts (1x-2x
monthly cc sales)
Advances range
from $3,000 $250,000
Loan is for 6 months
– 18 months
Borrower repays
$1.20-1.40 for every
$1.00 advanced
Payments can be
daily or monthly
Payments: Fixed $
or Fixed % of sales
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MCA Example
$10,000/month avg. credit card sales
$20,000 advanced (2x)
Fixed
$27,000 to be repaid
(@ 1.35/1.00) over
18 months
Flex $20,000 total
sales, repay @
10% = $2,000
$1,500 average
monthly repayment
(27,000/18)
$10,000 total
sales, repay @
10% = $1,000
$93 daily ACH
withdrawal
Repay monthly
until $27,000 paid
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MCA Requirements to Qualify
Average at least
$2,000/month
Visa/MC Sales
2 - 6 months
VISA/MC & Bank
statements reviewed
to determine funded
amount
Landlord verification
of lease terms
Client may be
required to switch
processors to funder
to facilitate
repayment of loan
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MCA Advantages
Not credit
driven
90% approval
rate
Funding in 7
days or less
Use funds as
the client
chooses
No extensive
paperwork
No closing
costs
No application
fees
No
financials/tax
returns required
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Unsecured Business Loan
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Unsecured Business Loan
•
•
•
•
•
•
•
Business Expansion
Pay bills
Purchase additional inventory
Buy out business partner
Purchase commercial equipment
Infusion of working capital
Example: Medical device mfg.
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UBL Requirements
Quality Personal Credit
• 680 credit score on all three bureaus. Not just
the middle score.
No Bankruptcy’s
• Personal or Business credit reports
Business can not have had in the last
3 years:
• Late pays, Collections, Judgments, Liens
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UBL Parameters
Funding in 1 day to 4 weeks
depending upon the transaction
Pricing ranges from Prime -1 to
Prime +6
to 7-year terms depending
If one year TIB: • 2-year
on credit and dollar amount
If start-up:
• Business Credit Cards at 0% firstyear interest
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Pledged Asset Loan
(aka Portfolio Loan)
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Pledged Asset Loan
Fixed Interest – typically below Prime
No personal liability, no credit bureau report,
no income verification
Collateral is the value of a single holding or
portfolio of publicly traded securities
LTV 70-90% of the portfolio’s market value,
depending on the liquidity of the securities
Non-recourse loan (can forfeit portfolio in lieu
of payback)
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Pledged Asset Loan
Portfolio receives dividends, interest
Credit Line or Fixed Term (3,5,7, or 10 years)
Funds in a week
May have to change to lender’s custodian
Example: $350K loan, 3%, 7 years, 78%
advance rate ($448 pledged)
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Pledged Asset Loan
At the end of the loan term:
• Pay off the loan and receive the
portfolio back with any appreciation
• Refinance the loan
• Forfeit the shares without paying back
the loan (e.g. if the value < LTV
amount) with no liability or effect on the
borrower’s credit rating.
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Thank you very much.
Kaplan Financial Consulting Group, LLC
1865 Hood Lane, Suite 100
Ambler, PA 19002
800-981-8978
800-210-0735 fax
www.KaplanFCG.com
Copyright © 2012
PA, NJ, NY, FL
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