Financing With Poor Credit

Sadie Keljikian and David Estrakh, Express Trade Capital

Let’s say your business needs financing, but has bad credit, meaning your FICO score is somewhere between 300 and 629. You may think that there aren’t any financing options that will allow your business to grow. However, alternative lenders can offer your business options of which you may not be aware.

Most traditional lenders require good credit and years of robust positive returns. Basically, they’re highly useful once you have a track record of sustained success on the books but are virtually non-existent on your way there. To fill this gap, alternative lenders have developed more flexible formulas and creative means for funding businesses. This means that although your credit may be too depleted to secure a traditional-style loan, you still have alternatives to enhance your capital and cash flow.

Here is a quick overview of your options from traditional lending to alternative lenders:

Bank Loans

Although they may seem like most straightforward resource, banks aren’t always the most practical options for business financing, particularly if your credit is poor or you don’t have much history. As regulated entities banks have rigid underwriting standards and procedures and offer inflexible terms, which will leave you with little recourse if you need flexibility or higher loan amounts down the road.


New businesses can take advantage of loans from the Small Business Administration. SBA loans are federally guaranteed and offer a variety of loan options and payment terms. Available lending structures include traditional-style loans with more generous payment terms, loans against commercial real estate or other valuable property, fixed or revolving lines of credit, export loans, microloans, and disaster loans.

To the SBA’s credit, interest on these loans is typically low and repayment terms are longer than other lenders can generally offer. However, as with bank loans, the terms of an SBA loan are usually inflexible because the SBA is a heavily regulated government agency.

Collateralized Loans – Invoices

When banks aren’t an option, but you’ve got open invoices with your customers, you can generally get cash advances against those invoices. Stagnant or inconsistent cash flow is a common problem among wholesalers who sell on open terms, so receivables factoring was created as a way to bridge the cash flow gap from when an invoice is first created to when it is finally paid by the customer.

Collateralized Loans – Purchase Order Funding

Some lenders will lay out funds to pay for cost of goods, shipping and related expenses required to fulfill the demands of a customer purchase order. Although purchase order funding loans are essentially loans backed by inventory, there are a few differences: (a) PO funding loans are made before the client has purchased inventory; (b) goods are presold to credit-approved retailers before purchase; and (c) the end customer who issued the PO will typically repay the lender directly rather than repayment by the PO funding client-borrower, as is the case with most loans.

Collateralized Loans – Inventory

Depending on your industry and sales volumes, you may be able to secure financing against inventory that you’ve yet to sell. Generally, lenders can offer cash lines secured by inventory only if their clients meet certain minimum sales volumes or revenues. They use your sales the same way other lenders would use your credit score: to confirm that you are likely to repay the loan, in this case, by asking you to demonstrate sufficient velocity of inventory sales which will generate enough revenue to repay the obligation.

Collateralized Loans – Equipment

If you operate a manufacturing facility or other processing facility and own (or plan to buy) your own equipment, you may be able to finance your business by using your equipment as collateral. The loan operates much like one against a car or other piece of valuable property. Provided that you make your payments on time, your equipment will be undisturbed, allowing you full use of the equipment while giving you access to the cash you had to freeze to purchase that equipment in the first place.

Collateralized Loans – Property

A number of bank and non-bank institutions will lend against existing equity in property or finance the cost of property acquisition in exchange for equity in the property once acquired. Such loans are typically lower interest rate due to the perception that property is a relatively stable asset. Formulas like loan to value ratios (LTVs) are created to account for possible price fluctuation. For example, if a lender has a 70% LTV, they will only lend 70% of the value of the property and the remaining 30% provides a cushion in case of price fluctuation, so as long as the value of the property doesn’t drop by more than 30% the lender can be compensated by selling off the asset.

Merchant Cash Advances (“MCAs”)

MCA’s are essentially loans extended to businesses in exchange for a percentage of the businesses’ daily or weekly credit card revenues. MCAs loans are typically repaid either directly by the credit processor who agrees to send a portion of the funds to MCA provider according to the terms of the MCA contract or from the bank account which receives proceeds from the credit card processor.

While MCA loans are expensive and often exceed state usury limits when viewed as loans, the MCA loan structure has some major advantages over that of conventional loans. First, payments to the MCA company fluctuate with the borrower’s sales volumes, giving them more flexibility to manage cash flow while repaying the loan, particularly during slow sales seasons. In addition, MCA loan approval process is substantially quicker than typical loans, allowing faster access to funds.

To discuss any of the above options further and get more specific details, please contact one of our financial specialists at Express Trade Capital.

US Import Tariff Updates

Sadie Keljikian, Express Trade Capital

The following is an update on recent tariff adjustments on steel, aluminum, and Chinese-made products.

Steel and Aluminum Products:

Several Presidential Proclamations signed in March 2018 have collectively implemented Section 232 of the Trade Expansion Act of 1962. The Proclamations primarily serve to adjust imports of aluminum and steel into the United States. The proclamations indicate that covered steel mill and aluminum product imports will be subject to additional tariffs of 25% ad valorem and 10% ad valorem respectively. The following products are covered:

  • Steel mill product HTSUS classifications:
    • 10 through 7216.50 including bars, rods, ingots and angles.
    • 99 through 7301.10 including wire, bars, rods, ingots and sheet piling.
    • 10 rails.
    • 40 through 7302.90 including sleepers and plates.
    • 11 through 7306.90 including pipes, hollow profiles and tubes.
  • Aluminum product HTS classifications:
    • 7601, unwrought aluminum.
    • 7604 including rods, profiles and bars.
    • 7605, aluminum wire.
    • 7606 and 7607 including flat rolled products like foil, sheet, strip and plate.
    • 7608 and 7609 including pipes, tubes, and pipe and tube fittings.
    • 99.51.60 and 7616.99.51.70, forgings and castings.

The newly implemented tariffs will be added to all existing duties and will apply to all countries of origin except for a specific list of exempted countries. Exempted countries include Argentina, Australia, Brazil, Canada, Mexico, South Korea and European Union members, which include Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom.

As of now, exemptions are limited through April 30th, 2018, but it is unclear whether they will be extended beyond that date. Extension of the exemptions may lead to a change in the rates applied to other countries and/or restraints on quotas for some, or all countries of origin.

Products from China:

On March 22, 2018, President Trump announced his plan of action to combat China’s unfair trade practices as addressed in the USTR Section 301 investigation of China’s Policies, Acts, and Practices pertaining to Intellectual Property, Innovation and Technology Transfer. As the president’s instructions, US Trade Representative Robert Lighthizer began the investigation in August of 2017.

President Trump has indicated that action against China will be taken in three stages:

  • Tariffs. Representative Lighthizer will propose a list of products with corresponding tariff increases within 15 days of the announcement on March 22, 2018. The final list will be published after a brief period for notice and comment.
  • WTO dispute settlement. Representative Lighthizer will attempt to settle the dispute in the World Trade Organization, or WTO to address discriminatory practices in China’s technology licensing.
  • Restricted investments. The Secretary of the Treasury will address concerns about investors in China or investments facilitated in China in US industries or technologies deemed important to the US.

On the bright side, President Trump signed an omnibus budget bill into law which aims to end the ongoing cycle of resolutions and government shutdowns. It also renews the General System of Preferences, or GSP, which seeks to ensure fair trade practices among WTO countries. The bill will extend GSP through December 31st, 2020 and retroactively renew it to the previous expiration on December 31st, 2017. Goods that arrive in between will be eligible for a refund, if indicated properly. The GSP will officially go back into effect on April 22, 2018.

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Retailers Speak Up About Trump’s Tariff Plans

Sadie Keljikian, Express Trade Capital

A collection of the largest global retailers have written an open letter to President Trump following his move to impose tariffs on $60 billion in exports from China.

Since his campaign, Trump has expressed frustration with the trade gap between the US and China, leading many to fear an oncoming trade war. Until today, however, the trade relationship between the US and China was more or less unaffected.

The retailers in question account for more than $1.5 trillion in annual sales and tens of millions of US jobs. They respectfully suggested that they work together with the president to come up with a solution less likely to negatively impact working American families.

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Toys R Us Begins Liquidation

Sadie Keljikian, Express Trade Capital

With consistently falling sales and pressure from several lenders, Toys R Us has begun liquidating its inventory ahead of planned store closures.

The retailer’s difficulties have only increased since filing for Chapter 11 last fall. Debtholders Hasbro and Mattel have seen their stocks fall significantly since then and started pressuring Toys R Us to liquidate its US operations to fulfill its debt obligations after a remarkably weak holiday season. Pressure only increased when news broke that the retailer was in serious danger of default two weeks ago.

While people close to the situation stress that plans are still fluid, it’s looking more and more like there’s little future for Toys R Us.

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Steel Yourself for Increased Import Duties

Peter Stern, Express Trade Capital

As widely reported in the press, President Trump announced plans to implement raised duties on steel and aluminum using a pre-existing but rather obscure provision. Section 232 permits the President to impose tariffs or quotas to protect national security.

President Trump announced tariffs will be 25% on foreign-made steel and 10% on foreign-made aluminum.

We expect an official document next week which should provide or lead to specifics around scope, effective date, duration, whether any countries are excluded or carved out, and whether there will be quotas with the tariffs. Also there is only speculation at this point as to what retaliation the US or US exports will face.

We will share the facts once known. If you have any questions, please contact us.

Kohl’s Brings in Aldi

Sadie Keljikian, Express Trade Capital

Kohl’s announced today that it will bring discount grocer Aldi into as many as 10 of its stores in a pilot test. The department store chain hopes to cut down on its brick and mortar presence and offer more variety in the space it occupies. Kohl’s announced the decision to share its store space with other retailers in January, but did not specify which ones. CEO Kevin Mansell emphasized “inventory reductions and margin acceleration as a result” when asked about the decision.

Kohl’s is also looking to build a strong relationship with Amazon. Several stores already contain kiosks that sell Amazon devices and Kohl’s plans to get further involved with the ecommerce giant. The bold moves come at an opportune moment, following very successful holiday sales for Kohl’s, and will likely set the tone for the chain’s 2018 activity.

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