Blog/News

Handling SBA Loan Lags

Sadie Keljikian, Express Trade Capital

The current government shutdown is the subject of nation-wide distress for myriad reasons. Sources are reporting that the shutdown, which is officially the longest in US history, has delayed public services like tax refunds, food, beverage and aviation product safety inspections, and millions of dollars in Small Business Association loans.

Generally, the SBA handles approximately $200 million in loans daily, but since the shutdown began, they’ve been unable to provide any financing aside from disaster assistance. As a result, hundreds of small businesses nationwide have waited a month for vital funds to help them grow and operate.

While many of the delayed loans are relatively small amounts, nearly 40% of them are known as 504 loans. These are meant to help business owners purchase real estate or costly equipment and can amount to $20 million or more. Regardless of quantity, many small business owners who rely on these loans are wondering how to bridge the gap until SBA loans are readily available again. The answer depends on where each business falls in the wide variety of industries the SBA serves.

Substituting these loans directly is tricky. If you or your business have very good credit, you may be able to replace your SBA loan with a regular bank loan, but it will likely take at least 60 days to reach you, which is decidedly unhelpful when speed is a priority.

We’ve discussed creative financing methods before, but not in terms of which methods are fastest. Depending on your budget, there are a few options that will give you access to quick funding for your business:

  • Factoring your receivables.

If you’re selling goods to creditworthy retailers, you can receive financing against your unpaid invoices. Provided you have all necessary materials and enough volume to qualify, you may receive funds within a day or two with this method.

  • Finance your purchase orders.

Purchase order financing (or PO financing) is a method designed precisely for wholesalers who need help covering production and shipping costs while they wait for their customers to pay. So, if you have purchase orders from creditworthy customers and need to bolster your business’s funds, PO financing is a great option.

  • Borrow against your unsold inventory.

If you have a stockpile of unsold inventory and a solid track record of consistent sales, you can borrow against your unsold inventory. This can take slightly longer than financing against your receivables or purchase orders since it requires a field examination (as do any lending arrangements involving goods, equipment, or real estate), but can be a highly useful tool if you find yourself in a slow season.

  • Enter a merchant cash advance agreement.

If your customers pay you with credit or debit cards regularly, you may want to consider merchant cash advance options. Merchant cash advance arrangements, or MCAs, aren’t technically considered loans, but operate in a very similar way. At the onset, you receive a lump sum in exchange for a percentage of your future credit/debit card sales. With an MCA, you will receive funds very quickly, but it is important to note that this is by far the most expensive option, as interest tends to run extremely high among MCAs and compounds over time.

There are numerous ways to handle an unexpected lag in your business’s operational funds, but be careful not to let an urgent situation lead you to poor lending choices that could hurt you down the road.

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Paving the Way for Entrepreneurs in Space

Joseph Stern, Express Trade Capital

In 1961, Ralph Cordiner, then chairman of General Electric, published a paper on the importance of private investment into space. Amid a cold war between the world’s super powers, Mr. Cordiner thought it prudent that the United States, as a proponent of capitalism, should beat the Russians in space not through government spending, but through private sector investment.

Since there was little economic incentive in space at the time, Mr. Cordiner’s vision did not play out. However, his words did not fall on deaf ears. With the rise of telecommunications came the first surge of investment into the fledgling space industry. Since getting to space was very expensive, the industry grew on the shoulders of telecommunications giants and the equally large corporations who supported them.

The idea that space is only accessible to governments and telecommunication elites changed drastically ten years ago with two developments: the private launcher and the cube satellite.

SpaceX

Space Exploration Technologies, now known as SpaceX, was a dream lead by PayPal founder Elon Musk. By 2008, SpaceX had run out of money and was on the brink of collapse. Then, without a feasible launch plan, NASA awarded SpaceX a $1.6 billion contract to resupply the International Space Station. Upon fulfilling the contract, SpaceX proved that it can launch cargo into space at a fraction of the cost of other government-funded launchers. Since then, other privately-funded launch companies have entered the space market though SpaceX remains the lowest cost launch provider, sending cargo into orbit for as little as $2,500 per kilogram.

CubeSat

The CubeSat was designed in 1999 by Jordi Puig-Suari and Bob Twiggs in an attempt to standardize satellite design. Within the CubeSat model, satellites are built to fit precisely into 10 cubic centimeter units: A 1U satellite would measure 10 x 10 x 10 cm, a 2U satellite would measure 10 x 10 x 20 cm, and so on.

The concept was relatively unutilized until 2013, when 88 CubeSats when up into orbit. Dropping launch costs, combined with ride sharing services which aggregate many satellites in on launch, drastically reduced the cost of launching satellites for people and institutions without much funding.  In the short period of a few years, even public high school science clubs are now able to build and launch their satellites into space.

Today, CubeSats are fitted with receivers, cameras, mirrors, and other sensors, which collect data and relay information to other satellites or back to earth. In the past few years, a growing number of governments and business have awarded contracts to smaller and mid-sized entrepreneurs to build and launch satellites for a variety of purposes including tracking endangered species, forecasting weather, valuing agricultural land, and aiding in archeological digs.  This marks a significant shift in the space industry landscape.  The space space has grown from being the exclusive domain of mega corporations and large publicly funded government entities with immense resources to include smaller governments and businesses.  The industry is wide open for participants and innovators of all sizes. 

Conclusion

Lowered launch costs and standardized satellite production have made space accessible to everyone from a telecommunications billionaire, to an entrepreneur who grew up dreaming of exploration, to a high school student who may very well realize their extraterrestrial aspirations while still in school.  Within a few short decades, Ralph Cordiner’s dream of a privately funded space industry is finally becoming a reality.

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Tackling Common Problems, Part 1

Sadie Keljikian, Express Trade Capital

Running a wholesale business is financially and logistically complex. There’s a lot to monitor and numerous variables can force you, the business owner, to think and act quickly to effectively manage unforeseen difficulties. Fortunately, most of these difficulties fall into a few categories of common problems that come up for small to mid-sized businesses.

Since these issues are common, solutions are readily available, though perhaps not obvious to less experienced business owners. Addressing them is just a matter of having enough experience to know how best to do it. Here are a few examples of common hiccups for which new businesses might not be prepared and what to do if they come up:

  • Problem: you’re a clothing designer and you decide to start producing and selling your designs independently. You have your designs and samples ready, you’ve sold some pieces direct to customers online, and you’ve even had promising discussions with local boutiques that would like to sell your pieces. There’s just one problem: you’re running this business by yourself and there’s no way you can produce the quantities the boutiques want in the given time frame. How can you get your business off the ground and establish a sustainable production structure?

Designers and inventors consistently run into the same problem: how can I produce the required amount of my product by the time my customer needs it without overextending my resources? There are a few ways to handle this. One is to simply turn down orders you can’t reasonably fulfill using your current production processes, but that means you’d miss out on opportunities for growth.

Another approach is to hire a team to manufacture your products on-site. This is an expensive option since it involves hiring new employees and acquiring new equipment, but it allows you to control product quality and directly and provides a foundation for increased output. As long as the business doesn’t grow more quickly than your overhead can accommodate, manufacturing on-site is a perfectly viable option.

Alternately, many designers and inventors choose to outsource their manufacturing processes, which removes the need for additional employees and specialized facilities. Some creators aren’t comfortable handing their designs over entirely, usually because they worry that their design will be plagiarized or that product quality will suffer. While quality and security concerns are valid, sufficient research and vetting will indicate whether a production facility is trustworthy. As long as you do your homework, outsourcing is an effective and efficient way to increase production.

  • Problem: a buyer at a big-box retailer contacts you to place a huge order. Your production line is ready, but you soon realize that the cost of fulfilling such a big order will leave your operational funds severely depleted. You don’t want to pass up the opportunity to gain bigger customers and expand your business, so how can you fulfill the order without dipping into funds you need to run your business?

Many flourishing wholesalers lose traction because they pass on big orders from influential retailers out of fear that they’ll lose equity or acquire unmanageable debt. What a lot of new business owners don’t realize is that there are ways to supplement business-related costs that don’t involve expensive traditional-style loans.

One way to approach the issue is to apply for a line of credit with a bank or private financial institution. Just like a credit card, a line of credit allows you to defer expenses that might be prohibitive. As long as you and/or your business is creditworthy and you are able to pay on time, there is very little downside to securing a line of credit on behalf of your business.

Another option is to use alternative lending (or “alt lending”). Alt lending is a growing and thriving field in which lenders use creative financing methods, meaning that you don’t necessarily need perfect credit to receive funding. Private financial institutions who offer alt lending solutions can offer funding against purchase orders, invoices, equipment, and even unsold inventory. Most importantly, this method allows you to borrow small amounts as needed, rather than borrowing a lump sum and worrying that you’ll accrue excessive interest.


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Back-to-Back Letters of Credit

Sam Permutt, Express Trade Capital

A back-to-back letter of credit (LC) is a common, but often overlooked, form of trade financing.

In a typical back-to-back LC scenario, an intermediary trading company receives an inbound LC from the buyer’s (applicant’s) bank and, using that first LC as collateral, issues a second, outbound LC in favor of the supplier (beneficiary).

Back-to-Back Letter of Credit graphic

Back-to-back LCs are surprisingly simple to coordinate, as both LCs are nearly identical. The only differences between the two LCs in a back-to-back LC model are the credit amount vs. the unit price and the expiry date/period for presentation/latest shipment dates. The unit price is how much the product will cost the final customer, whereas the credit amount accounts for the wholesale costs. The timing of the two LCs must be staggered to allow time for each party to process and transport the shipment.

The additional layer of security that back-to-back LCs provide comes not only from the presence of two separate, albeit nearly identical LCs, but also from the fact that both LCs are available at the intermediary’s bank. This centralized method of monitoring reduces risk and secures all parties involved in the multi-tiered transaction at hand.

Back-to-back LCs therefore help build trust between buyers and sellers of goods around the world, reduce credit risk, and speed up cash flow. They’re beneficial to the intermediary trading company insofar as the company does not need to disclose to its supplier the details of the ultimate buyer of the goods or even the price at which they were sold.


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Spotting Lending Scams

Sadie Keljikian, Express Trade Capital

Recently, the alternative lending industry has expanded immensely, offering small business owners more funding options than have ever been available before. Unfortunately, this also means that scammers offering fake business loans target small business owners with increasing frequency. Without experience, avoiding these scams can be difficult but, fortunately, there are ways of identifying scams before you get taken in. Here are a few of them:

  • Research your source carefully.

It’s impossible to know everything about a lender before you enter an agreement with them, but where you find the lender (or in some cases, where they find you) is important. Lenders that advertise or reach out to you on networking and social media sites like Craigslist or Reddit are generally not legitimate. Rather than risk losing money to a fake lender, you can use a verified database site specifically designed to provide credible lender options. Vetting is always important, particularly when your business’s finances are involved, so be sure to research your lender as best you can before you commit or put money down.

  • If it sounds too good to be true, it probably is.

Beware of any lender that asks you for an ambiguous fee before approving you for financing if the terms seem too good to be true (I.E. 0% interest, “No credit? No problem!”, guaranteed approval). Many financing arrangements involve upfront fees, but always know who you’re dealing with before you pay up. Generally, a scammer’s only goal is to get you to pay the initial fee, which is why they claim that absolutely anyone will qualify.

With some exceptions, most legitimate lenders have credit requirements for their clients. Even those that offer financing to clients with lackluster or nonexistent credit history will require some other type of collateral and will often charge high interest rates to clients with credit issues. Ads and emails from strangers claiming that you are “guaranteed approval” on your future loan are blatant lies, as no lender can guarantee approval without the client’s financial details.

  • Beware of unsolicited offers and “insider” deals.

As a general rule, financiers don’t reach out to businesses with whom they don’t have any relationship. On the rare occasion that they do, they’ll typically ask if you are interested in their particular services, rather than notifying you that you are “pre-approved” or have otherwise been chosen to receive a special deal.

By the same token, anyone offering “insider” information about business financing, particularly those who claim that they have the scoop on free grants from the federal government, should not be trusted. With extremely rare exception, there is no such thing as a free federal business grant. Besides which, the government isn’t in the habit of hiding grant opportunities from business owners; details on all federal grants are available online.

  • High-pressure salespeople are a sign of trouble.

Any salesperson will have some degree of urgency when they speak to a prospect, but if you’re talking to a supposed lender who insists that you sign on immediately, be wary. This particular issue may not always signify a scam, but any reasonable financier will give you time to sleep on it and come to a decision without a metaphorical gun to your head.

  • Don’t be afraid to ask questions before you disclose sensitive information.

This tip is valuable in any situation involving the transfer of sensitive banking or personal details. Never shy away from asking questions. The right financier will be happy to walk you through the process and explain any aspects that may be confusing.

Another way to avoid giving your sensitive information away to unsavory characters is to research your lending options and learn as much as you can about the mechanics of the type of financing you choose. Knowing as much as possible about how the process works in general will prepare you for the process as it should proceed and make you more likely to notice any red flags.


At the end of the day, it can be tricky to avoid scams, but use your best judgment and acknowledge any red flags you encounter before you give away any money or sensitive information.

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Full-Recourse vs. Non-Recourse Factoring

Sam Permutt, Express Trade Capital

Receivables factoring is a tried-and-true solution for insufficient cash flow in business-to-business sales relationships. It allows vendors to sell large orders to retailers and assign the receivables to a factor, helping to avoid depleted operational funds while outsourcing collections labor and, in many cases, the risk of unpaid invoices.

Lately, we’ve received numerous inquiries about the difference between “full-recourse” and “non-recourse” factoring.

To address these queries, here are five things to know about these different types of factoring:

Full-Recourse factoring means that the vendor, not the factor, bears the risk if the retailer does not pay the invoice.

Non-Recourse factoring means that the factor, not the vendor, absorbs the credit risk. If the retailer goes bankrupt or insolvent – or even refuses to pay without reason – the burden falls to the factor to pay the invoice.

Hybrid recourse/non-recourse factoring means that the factor will provide credit protection for a portion of the invoice.  The amount of risk the factor will take on depends on how much of that invoice the retailer will likely pay.

The risk of normal chargebacks and disputes is not covered in these instances.

The benefit of non-recourse factoring is that the vendor knows that once her invoices are factored she can rest assured that one way or another, she will be paid.

To speak more about non-recourse factoring, please contact us.


ETC Representatives Attending IFA Conference in Miami

Express Trade Capital is sending two representatives to the IFA conference in Miami, FL, which begins tomorrow. If your factoring prospects or clients require letters of credit, financial instruments, purchase order or inventory funding, and/or logistics services, let’s connect while we’re here!

In short, ETC partners with banks and alternative lenders to offer a one stop shop for all trade financing services that allows lenders to enhance offerings while expanding their network beyond the standard third party molds and models.

If you’d like to attend, email David Estrakh at david@expresstradecapital.com or Sam Permutt at sam@expresstradecapital.com

 


Trade Protection Financing Announced at ETC!

Express Trade Capital is pleased to announce the latest in our growing selection of innovative financing services with Trade Protection Financing. We will use a combination of specialized credit enhancements, along with preferred pricing structures, to offset any potential tariff cost implications due to new legislation. We are fully equipped to help you purchase goods at a reasonable price worldwide, even during these uncertain times, with our full spectrum of trade finance, supply chain, and logistical solutions.

Contact us to take advantage of this innovative and exciting new financial vehicle!


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.

SBA

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.