Funding Your Small Business Know All Your Options A funding seminar presented by members of the Cash

1
Funding Your Small Business Know All Your
OptionsA funding seminar presented by members
of the Cash Flow Professionals Associationof
Kansas City
2
Agenda

• Introduction
• Two Ways to Fund Your Business
• Traditional Non Traditional
• Accounts Receivable Funding
• Commercial vs. Government Receivables
• Understanding the Process
• Traditional Loans and A/R Funding
• Other Funding Options

3
Cash Flow Shortages

• WHAT IF...

• Your credit isnt strong enough for a bank loan
• You have exhausted your line of credit
• You are turning down jobs/contracts because of
  lack of funding
• Your cash is tied up in receivables
• You are worried about making payroll or paying
  taxes
• You have been unable to take advantage of
  supplier cash discounts or volume discounts
• What do you do when the bank says No?

4
Without Proper Financing

• Your company could look like this.

5

• Without proper financing! ! !

6
There are Two Ways to Finance Your Business

• 1.) Traditional Methods
• Equity Sell Your Ownership
• Debt Sell Your Credit Worthiness
• 2.) Non-Traditional Methods
• Accounts Receivable Funding Sell your
  Receivables
• Purchase Order Funding-Selling your purchase
  order
• Credit Card Factoring-Selling your future credit
  card receivables

7
Non-Traditional

• Receivable Funding
• Not a loan
• No loss of equity or control
• Highly flexible
• Unlimited availability
• Only A/R pledged

8
Accounts Receivable Funding

• What is it?
• A funding tool where a business sells all or
  some of its accounts receivable in order to
  provide steady and predictable cash flow. The
  receivables are sold at a small discount similar
  to the discount offered by vendors to their
  customers for cash or quick payment.
• Basically trading your accounts receivable for
  cash today.

9
Government Receivablesvs.Commercial Receivables

• The biggest question in A/R Financing is Who
  pays...
• With government receivables, it is the government
  who pays.
• With commercial receivables, it is your customers
  who pay.

10
Government Receivables

• Good News!!
• If you do business with any level of the
  government, your company is pre-approved for
  funding
• Levels of Government
• Federal Government
• State
• County
• City
• Town
• School Board
• Airport
• Prisons

11
Government Receivables

• The Assignment of Claims Act
• Created in 1986
• Purpose Why it was written
• Who benefits

12
Government Receivables

• (b) Assignment. The Contractor or its assignee
  may assign its rights to receive payment due as a
  result of performance of this contract to a bank,
  trust company, or other financing institution,
  including any Federal lending agency in
  accordance with the Assignment of Claims Act (31
  U.S.C.3727).

13
Government Receivables

• Why does the U.S. Government endorse factoring?
• Evens the playing field
• Expands vendor base
• Induces private sector to offer funds
• Provides guidelines and prescribed method to do
  business with the government
• Specific aid to set asides, 8A, SDVOB, HUB Zones,
  minority companies

14
Commercial Receivables

• Remember.the biggest question in A/R Financing
  is Who pays?
• With Commercial receivables credit decisions are
  based on the strength of your customer basis not
  solely on your personal or business credit.

15
Commercial Receivables

• What is important
• Creditworthy customers
• History of steady payment
• Good DB Report

16
Understanding A/R Funding. The Process

• Invoices purchased in 2 installments
• -Advance
• -Rebate
• Advance- Typically 80 of invoice amount within
  24 hours of invoice verification
• Rebate-Invoice has paid and the 20 balance goes
  to client less discount fee

17
Understanding A/R Funding. The Process

• Sample Transaction
• Invoice........... 1000.00
• Advance 80 ...800.00
• Invoice is paid in 35 days,
• Rebate balance 20 ..200.00
• Typical Fee for 35 days
• outstanding(3)... (30.00)
• Net Rebate paid to vendor....... 170.00
• Total paid for invoice... 970.00
• Total discount
• on sales................30.00/1000.00
  3.00

18
Understanding A/R Funding. The Process

• Once the rebate portion in the cycle of payments
  activates, the vendor is receiving 95-98 of
  revenue monthly

19
Understanding A/R Funding. The Process

• Once the Rebate portion begins to be paid you
  receive the majority of your invoices monthly.
• Month Month
  Month Month
  Month
• -1- -2-
  -3- -4-
  -5-
• 80 80
  80 Etc.month
  after month
• 20
  20
  20
• From Month
  From Month
• -1-
  -2-
• (Less Fees)
  (Less Fees)

20
The Cost Of A/R Funding

• Without Funding
• Monthly revenues 100,000
• Cost of Goods 60,000 (60)
• Gross Profit 40,000 (40)
• Overhead 38,000 (38)
• Cost of Funding ___N/A______
• NET PROFIT 2,000 (2)

• With Funding
• 200,000
• 120,000 (60)
• 80,000 (40)
• 48,000 (24)
• 8,000 (4)
• 24,000 (12)

The cost of factoring is always reflected as a
percentage of sales, just as early pay or volume
discounts appear on your financials. It will
never appear as an interest expense.
21
Pros Cons

• Traditional Loan
• Pros
• Competitive Rates Terms
• Secured with a bank
• Building relationship with banker
• SBA Programs Available
• Cons
• Credit Limit is Capped
• Good Credit Required
• Significant Collateral Required
• Requires monthly payment

22
Pros Cons

• A/R Funding
• Pros
• Immediate Steady Cash Flow
• Unlimited Funding Availability
• Credit decision based 90 on Customer Base
• Only Collateral Needed are Receivables
• No additional Debt / No Monthly Payment
• Cons
• Slightly more expensive than bank loan
• Difficult if Receivables are already Pledged
• Profit margins may not be large enough to use A/R
  funding
• Some funders charge upfront application fees

23
Other Non-Traditional Options

• Purchase Order Funding Capital paid directly to
  a vendor to release goods to complete a purchase
  order.
• Vendor Assurance/Letter of Credit Financial
  backing from a 3rd party to your vendors
  guaranteeing payment once product is delivered.

24
Other Non-Traditional Options

• Contract Based Funding Funding based on the
  terms on a contract and the credit-worthiness of
  the a customer.
• Credit Card Factoring Funding advanced based on
  past credit sales and paid back by future credit
  card sales.

25
Funding Your Small Business

• Any Questions???

26
Want More Information

• Contact
• Frank Hansel
• Horizon Capital USA
• 913-904-0660
• 800-798-4628
• Fax [phone]
• www.HorizonCapitalUSA.com
• fhansel_at_kc.rr.com