What is the Business Cycle Approach to Financing my Company?

The business cycle approach consists of matching the most appropriate financing structure for a company based on its position in its business life cycle relative to its strengths and weaknesses.  Rather than a single solution, the business cycle approach usually consists of a multi-faceted structure.  For instance, a high growth company with only minimal equity that wishes to purchase a building may need a SBA loan in conjunction with a purchase-order program and a factoring facility. 

A mature company may qualify for an equipment lease, but seek purchase order financing to fund a few major orders.  Because many of these programs can overlap, it takes a financial professional who understands the different products to help craft a solution that exploits your strengths and protects your weaknesses. 

Does Factoring Make Economic Sense and What are Some Other Reasons to Factor?

Every business has costs that are necessary to operate it on a day-to-day basis.  Management accountants and economists divide these costs into fixed costs and variable costs.  What does this mean to a business when discussing the cost of factoring?  Assuming accounts turn in 30 days, the cost of factoring tends to be 2.0% - 3.0% during this period.  While this may seem high, you should ask the following question:  How much would I be willing to pay my suppliers if I could sell the additional product at a profit?  If factoring costs an additional 3%, but the sales yield an additional gross margin of 40% and variable costs are only 10%, factoring translates into a sound business and economic decision.  Factoring is not a substitute for bank financing of an equivalent amount.  This is almost never the case.  Usually, the choice is to either factor or forego potential sales because of inadequate working capital.

Information Required for Submission

• Completed Application

• Due Diligence Deposit

• Two Years Corporate Tax Returns and/or Year-End Financial Statements

• Copy of Articles of Incorporation and Bylaws

• A Detailed Accounts Receivable Aging Report

• Customer Contact List with Addresses and Phone Numbers

• A Current Detailed Accounts Payable Aging Report

• Interim Financial Statements

• Business Plan (if applicable)

• Marketing Literature (Brochures)

• Personal Financial Statement for Major Stockholders ($250,000 +)

Through the approval process we look for the following attributes in our clients:

• Decent Margins (usually 20%+)

• High Quality Accounts Receivable

• Success Potential for the Business

• Competent and Honest Management

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