Action Capital Corporation. Creative Financing for Small Businesses Since National Veterans Small Business Engagement November 17-19,2015

Transcription

1 Action Capital Corporation Creative Financing for Small Businesses Since 1959 National Veterans Small Business Engagement November 17-19,2015

2 Sources of Capital & Liquidity Source of Capital Trade or Supplier Credit Traditional Bank Debt or SBA Loans Specialty Debt (Leasing, etc) Finance Company Debt (Action Capital) Mezzanine Debt Equity from Principal, Family, Friends, Investors Relative Cost Lowest Cost Highest Cost

3 Characteristics/Requirements of Various Capital Sources Trade or Supplier Credit FREE! Requires Operating History Must Maintain Trade Payment Terms (Net Days) Higher Limits Will Require Good Quality Financial Statements Only Available to Support Specific Product Purchases Payroll, Operating Costs, Taxes, Rent, Travel, Other Vendors Not Supported by Trade Credit Traditional Bank Financing More Expensive Than Free Trade Credit, but Less Expensive Than Other Debt Options Up Front Closing Costs, Legal Fees, Commitment Fees Requires Good Quality Financial Statements, Multi-Year Positive Net Income, Financial Reporting Positive Tangible Net Worth/Low Balance Sheet Leverage (Debt/Equity) Typically Requires Hard Asset Collateral (Equipment, Real Estate and in some cases, a lien against personal assets such as residence) and Personal Guaranties Can Be Lengthy Process to Establish (3-8 weeks)

4 Characteristics/Requirements of Various Capital Sources Specialty Debt (Leasing, Off-Balance Sheet Structures) More Expensive Than Bank Debt Because of Costs of Financial Structuring Ultimately Requires Financial Strength & Support Required by Straight Bank Debt Structure of Specialty Debt Structure May Allow Replacing One Financial Obligor with Another Finance Company Debt (Accounts Receivable, Purchase Order and Inventory Financing) Will Cost More Than Traditional Bank Debt Provides Capital to Segments that Do Not Qualify for Bank Financing Typically Funding Against Accounts Receivable, Inventory and sometimes, Purchase Orders Tight Collateral Monitoring Control of Collateral Allows Lender to Look Past Company Business Problems (losses, customer concentrations, liens, start-up, high growth) Much More Flexibility, Typically No Financial Covenants, Lighter Financial Reporting Requirements

5 Characteristics/Requirements of Various Capital Sources Mezzanine Debt Typically a Subordinated Debt Instrument, but with Equity Warrants that Make it Very Expensive Focused on High Cash Flow or Growth Opportunities to Make Equity Piece Valuable Typically Wants Greater than $1 Million in Outstandings Equity Most Expensive - Difficult to Get Institutional Funds Some Ability to Raise Friends & Family Funds, but Not Likely Large Dollar Amounts Very Long Process to Raise Capital Provides Most Flexibility from Financial Structure, BUT Must Give Part of Company Ownership Away. New Equity Partner Will Have Vote in Strategic Direction of Company and Possibly Operations

6 Accounts Receivable Financing - Basics Funding Provided to Company Using A/R as Collateral Company Provides Copies of Invoices to Funding Source (Action Capital) Funding Source Advances Up to 90% of Collateral Value for Approved Invoices Company s Customers Pay Directly to a Lockbox Service Provided by Funding Source When Payments Received On Invoices Funded - Applied Directly to Pay Down Loan Balance (Self Liquidating) and 10% Holdback Balance is Released Requires Priority Lien on A/R and UCC Filing Personal Guarantees of Owners Required

7 Accounts Receivable Financing Basics (continued) Useful for Companies that Do Not Qualify For Traditional Bank Financing More Expensive than Traditional Bank Debt but Certainly Less Expensive than Mezzanine Debt or Equity Receivable Characteristics That Are Important Credit Quality of Account Debtor Credit Terms Nature of Work or Services Performed Billing (Invoicing) Procedures Concentrations Historical Dilution

8 What Does a Good A/R Aging Look Like? 40% 35% 30% 25% 20% 15% 10% 5% 0% < 30 Days Days Days > 90 Days Number of Days from Invoice Date Percent of Total A/R

9 Purchase Order ( PO ) Financing Basics Submit Customer Purchase Order To Finance Company Along with Your Purchase Order to Supplier Finance Company Contacts Supplier to Verify and Sets Up a Direct Payment to Supplier for Release of Goods Finance Company Gets Acceptance of Goods from Customer Company Prepares Invoice to Customer and Finances That Invoice Less Amount Already Sent to Supplier Inventory Financing Basics Finance Company Advances For Purchase of New Inventory or a Percentage of Existing Inventory - Inventory Loan Inventory Advances May Be Made Directly To Suppliers For Inventory Purchases As Company Sells Inventory to Customers, Finance Company Takes a Percentage of Invoice Advance to Pay Back Inventory Loan Based on Inventory Cost. Difference is Advanced at 90% of A/R Advance Rate to Company For Working Capital As New Inventory Loan is Required, Company Provides Finance Company a Copy of Purchase Order and Finance Company Advances to Company or Pays Direct to Vendor For Purchases

10 Sample A/R Pricing Structure Interest Rate: Prime + 1 ½% to 2% Monthly Fee: 0.67% to 1% Pricing Example 30 Days Client has $100,000 Financed With 90% Advance Rate All-in Cost for 1 month Interest: $90,000 x Prime + 2% = $90,000 x (3.25%+2%) /12 =$ Monthly Fee: = $90,000 x 1% =$ Total Cost $1,293.75

11 Why Use Action Capital? Founded in Year History Expert on A/R Financing For Small Businesses, Especially Government or Prime Government A/R Quick Response - Often Able to Complete Set Up in 2 Days Aggressive Advance Rates up to 90% Competitive Interest Rates and Fees Based on Net Outstandings, Not Gross Outstandings (like most of our competitors) All Documentation Completed Internally - No Outside Legal Fees Work Directly with Decision Makers No Long Term Contracts, Upfront Fees, Termination Fees Focus on A/R Quality Allows Ability to Work Around Problems Secure Website Updated Daily Provides Detailed Information on Open Items & Cash Collections Same Day Funding Via Wire or ACH Save Time\Money Using Free Deposit Lockbox to Apply Remittance Advice (EFT and EDI capable)

12 How to Contact Action Capital Becky J. Cronister President Patrick Thom EVP Action Capital Corporation 230 Peachtree St, Ste 1910 Atlanta, GA Telephone (404) Toll-Free Fax (404) Website