Alternative Sources of Financing

 By Lois Whitehead, Public Relations Manager

The New York State Society of CPAs’ Cooperation with Bankers and Other Credit Grantors Committee hosted a breakfast on Dec. 10 on types of alternative sources of financing.

NYSSCPA board member Neville Grusd, of Merchant Factors Corporation, moderated a panel that included Kathleen Krieg, of JP Morgan Chase, Marc Heller, of HSBC Business Credit (USA) Inc., and Paul D. Schuldiner, of Transcap Trade Finance LLC.

“There are various ways of raising money,” Grusd said while introducing the panel. “Banks are more involved in alternative financing, showing its current popularity.”

Krieg discussed asset-based lending, saying that it primarily focuses on the quality and value of collateral and cash flow. She compared asset-based markets to traditional bank markets, noting that the former can provide more working capital liquidity with greater flexibility and fewer covenants than a cash flow–oriented structure may allow. She also reviewed structural trends and the execution of asset-based lending, as well as how it is used in acquisitions, corporate divestitures, recapitalizations and turnarounds.

Drawing from his experience at HSBC, Heller led a discussion on factoring. In secured working capital financing, he said his bank reviews inventory financing, seasonal over-advances and letters of credit.

“Factoring offers significant power with the collecting buyer,” Heller said. “With secured working capital financing, there is a discount rate, an average advance rate of 85 percent, and a monthly report to tell how well or poorly a client is doing.”

He also discussed term loans for machinery and equipment, real estate and intellectual property, adding that a bank familiar with a company may consider intellectual property for collateral.

Heller said that over time his bank has learned to do import factoring with credit guarantees and collection of U.S receivables; export factoring is not as much an element in today’s market, he remarked.

Schuldiner reviewed purchase order financing and how underwriting works for a prospective client with financial and transaction risks. He reviewed time constraints in working with third parties and reporting to management, and he discussed requirements for setting up lines of credit between $500,000 and $10 million with voluntary commitments and personal guarantees.

Panelists said people considering alternative financing should prepare a business plan that includes both industry and market analyses, projected balance sheets, income and cash flow statements. Capital sources prefer financial projections on a monthly basis for the first year, and then annually for three years. The amount of detail and research needed in financial projections is directly related to the amount of outside capital that one hopes to secure.

Members who attended the breakfast received one continuing professional education credit for the session.