The Truth About Asset Based Lending

For the longest time, there was a stigma attached to asset based lending and those companies that used it. It was for companies with bad credit, strapped for cash, and unable to get funding from traditional sources such as banks.

Not anymore.

More and more staffing companies are using asset based lending not because they have to, but because it offers the flexibility and competitive pricing they’re looking for. Plus, when you pick the right asset based lender, you may also acquire expert industry resources for your business as well.

Flexibility

Flexibility is the biggest difference between asset based lending and traditional bank lines of credit.

Staffing is usually one of the first industries to feel changes in the economy. The staffing industry felt the effects of the recession sooner, but it’s also recovering sooner as well. While banks are still operating under their current tight credit restrictions of the recession, staffing companies are looking to grow. They need financial partners that can support and enable — not inhibit — that growth.

Asset based lending is a revolving line of credit that fluctuates based on your accounts receivable balance. It easily allows for larger credit limits in times when your A/R balance necessitates increases. An asset based business line of credit is usually designed for the same purpose as a normal business line of credit — to allow the company to bridge itself between the timing of cash flows of payments it receives and expenses.

Asset based lenders are NOT factors. Factors actually purchase your accounts receivables. This is not a loan, but a purchase of the financial asset. With factoring, the factor will try to alleviate its risk by controlling with whom the company does business to make sure those customers can actually pay. They’ll also take an active, intrusive role in collections from customers. A factor will typically fund based on each customer’s risk, not on the total portfolio risk.

With asset based lending, you still own your accounts receivables, and those assets are used as collateral against the funds you borrow.

A bank line of credit is established when your account is set up using your A/R balance at that time. In staffing, one big contract can mean an immediate need for more financing, which traditional bank lines of credit are not set up to accommodate. To increase your bank line of credit, you may need to wait as many as 30-60 days for a review, as well as pay additional fees to have your line increased.

Asset based lenders who specialize in the staffing industry understand that staffing company needs change quickly. They can often increase your credit line within a few days, if not automatically, instead of making you wait weeks. This can mean the difference between landing that big new contract, and having to let the opportunity pass you by.

Overall Cost

Another common misconception about asset based lending is that rates are higher than traditional bank lines of credit. Competition within the industry has brought asset based lending rates down. However, another important aspect to consider with any financial decision is any additional fees associated with your lending contract.

With both asset based lenders and traditional banks, you have your basic cost of funding: the percentage rate for the funds you actually use. As with any credit contract, the better your credit, the better rates for which you are eligible. Your rates can be calculated in many ways based on how quickly you pay. Be realistic when calculating how long you need to repay your line of credit and then determine your true cost from there.

But that isn’t where your expenses end.

Bank lines of credit often include a host of fees and expenses that can significantly increase your overall cost. These expenses need to be considered when comparing your financing options, and can include line usage fees, loan fees, line of credit increase fees, lock box fees, and initial application costs.

Banks may also impose strict guidelines on your staffing business, including guidelines for your business covenants that restrict how much executives can earn in a year, ROI requirements, capital expenditures, and limits on business growth.

A word of caution here: some asset based lenders offer what appear to be extremely low rates. However, these contracts may include incremental fees that can greatly inflate your true costs. (Understanding your true cost when it comes to rates will be the subject of my next article). Additional costs that can quickly add up include items such as clearance delays, fund transfer fees, overnight fees, credit reporting fees, UCC fees, document fees and administrative fees.

With ANY financial contract, make sure you have a true, full picture of your costs before you sign on the dotted line to avoid any unpleasant, unexpected hidden expenses.

Expert Resources

Unfortunately, to many banks, you’re just another loan on the books. When you find a good financial partner, the relationship becomes more than that. A good partner often has expert resources to help your business make sound, strategic financial decisions.

When you partner with a financial lender who specializes in the staffing industry, they often have resources beyond what traditional bank lenders offer. Oftentimes they’ll offer professional collections assistance, access to payroll processing services, online, real-time aging reports, and credit summaries to help you determine the credit-worthiness of new customers. They can also help you understand any tax implications of your business decisions such as entering new markets. The good asset based lenders take a vested interest in the success of your business and will look out for your best interests.

That’s when it becomes more than just a vendor relationship, but a true partnership.

Asset based lending isn’t a shady, expensive, lending of last resort option for companies with bad credit. More and more staffing company owners are realizing that their needs don’t fit the traditional bank line of credit mold. They are turning to asset based lending — not because they have to — but because it makes good business sense and fits their needs. Asset based lending is a solid, flexible financial option for staffing companies eager to grow their business.

It’s the Most Wonderful Time of the Year – For Strategic Planning

By: Julie Ann Blazei, President / CEO , Tricom Funding

In Wisconsin, the snow has already started to fall, signaling the end of another year. For many of us, it’s the time of the year when we are busy wrapping up all the loose ends of the current year and looking over what still needs to be accomplished in 2011 — next year is still a distant month away. Others may already be deep in the trenches with budget planning for the New Year.

Regardless of where you’re at in the process, as 2011 comes to an end, I encourage you to take a few hours this month to review the successes and failures of the current year and do some strategic planning for the new year with a group of your staff

Not sure where to start? Has your current strategic planning process not been as impactful as you had hoped in the past?

2011 Year End Update

Take the stress out of December and preparing for Year End by using Tricom’s Year End Bulletin to stay on top of legislative changes that are important to the staffing industry.

We’ve collected all the relevant, timely and necessary information you need to ensure your staffing company is staying up-to-date with changes that directly impact your business.

Insurance For Temporary Staffing Agencies: What You Don’t Know Can Hurt You

By: Kerri Quigley, CPCU, ARM, AU

Given the nature of your business, owners and risk managers of temporary staffing agencies must address a number of unique liability exposures that frequently are not covered by standard insurance policies. While an agency retains liability for the actions of its employees, those employees are primarily supervised at off-site locations by the agency’s clients. This arrangement can create gaps in insurance coverage that are not always evident without a thorough examination of the policy by an expert in temporary staffing insurance. Often, such gaps are not noticed until an uncovered claim forces the staffing agency to pay full damages out of its own pocket. The following scenarios illustrate this point by examining two plausible situations that may not be covered by a traditional policy.

Has the Weather Ever Delayed Your Payroll Checks

It’s that time of year. The leaves are turning, the air is starting to have that hint of a chill and stores are beginning to display their holiday wares. Not far behind is winter. And along with winter comes the winter storms. Even though you may not live in a climate where blizzards are the norm, that doesn’t mean a nasty winter storm in another region can’t impact your business — especially your payroll.

Bad weather and natural disasters are an unfortunate fact of life. But they don’t have to derail your payroll schedule or keep your employees from receiving their pay in a timely manner. Paid employees are happy employees. That’s why more and more staffing companies are turning to direct deposit and paycards instead of payroll checks. One paycard company estimates that by next year, more than $550 billion of wages will be disbursed through paycards. Plus, this year over 600,000 Americans received their tax refunds via their paycard.

You can’t control the weather or any natural disaster, but you can control when your employees receive their pay with the use of direct deposit or paycards.

Is Self Funding Really In Your Best Interest?

Every once in a while as I speak with staffing company owners, I’ll meet someone who doesn’t use any source of outside payroll funding assistance.

While I respect anyone’s decision on how he or she chooses to run his or her business, I’m always curious as to why they choose this path. So I tend to ask a few questions and learn more about their business.

What I’ve found is interesting. The same types of comments keep coming up in my conversations. “It’s irresponsible.” “It’s not how I do business.” “I’ll lose control of my financial well being.”

In speaking with self-funded staffing company owners, I’ve found they tend to fall into three schools of thought.

Beyond The Numbers: Special Edition - NY Wage Theft Prevention Act

Download the PDF version here

The Wage Theft Prevention Act, effective April 9, 2011, applies to all New York employers. It modifies current new hire notification requirements that have been in effect since late 2009, imposes an annual notification requirement and modifies the information required to be included on pay stubs.

Integrity: How does your funding provider measure up?

Integrity.

It’s something you’d naturally expect from any company you work with. Unfortunately, being forthright, professional and honest isn’t always standard operating procedure these days.

When you’re dealing with something so critical to your staffing company as funding, it’s imperative that you know your dealings with that company will be professional and honest.

Flexibility in a Funding Partner

“It’s very important to have flexibility in a funding partner.”

“And if in fact it was a major chore for us to be able to flex our credit line and so on, then we would probably have to look for a different funding partner.” — Karl McCoy, President & Founder, ProTech Search

After some trying years, the staffing industry is starting to see the light at the end of the recession. Many staffing companies are experiencing opportunities for solid sales and strong growth. These are the start of some exciting times.

2011 Executive Forum

There’s still time to make your plans to head to Miami at the end of February.

The 20th Annual Staffing Industry Analysts Executive Forum is this February 28th – March 3rd at the Fontainebleau Resort in Miami Beach, Florida.

Executive Forum is a great opportunity for staffing company executives from around the country to gather and learn about strategic issues, developing trends, future opportunities and current challenges in the staffing industry.

Looking Beyond The Bank Line of Credit

Looking Beyond The Bank Line of Credit:
The Truth About Asset Based Lending For Growing Staffing Companies

Economists have declared the recession over.

Tell that to small business owners throughout the country still struggling to receive the credit they need to grow their businesses.

A recent article in Crain’s New York Business entitled “Why can’t these companies get a bank loan?” revealed that access to capital is the number one business issue for half of the private companies nationwide. They found that banks are still being extremely cautious with their credit for small businesses, approving only 20 to 30 percent of small business credit applications.

For example, at Wells Fargo, loan decisions are generally based on cash flow plus collateral. Most small businesses’ cash flow has declined, and real estate values have dropped significantly.

2010 Year End Bulletin

ARE ALL OF YOUR EMPLOYEES CURRENT WITH THEIR FORM W-4??

Employees Exempt from Withholding: An employee who certified to his employer on Form W-4, Employee’s Withholding Allowance Certificate, that he had no income tax liability for 2009 and anticipated no income tax liability for 2010 was entitled to an exemption from withholding for 2010. If the employee expects to incur income tax liability in 2010, a new Form W-4 must be given to the employer by February 15, 2011.

Change in Exemptions: If an employee loses an exemption at the beginning of the New Year for any reason, they should also file a new Form W-4 for 2011. An employee who wishes to make changes to their current withholding should also file a new Form W-4.

Does Change Make You Nervous?

Change.

It’s a fact of life. And in business, how you react to change can mean the difference between success and failure.

Flexibility

Overall Cost

Expert Resources

By: Kerri Quigley, CPCU, ARM, AU

Integrity.

“It’s very important to have flexibility in a funding partner.”

There’s still time to make your plans to head to Miami at the end of February.

Looking Beyond The Bank Line of Credit: The Truth About Asset Based Lending For Growing Staffing Companies

ARE ALL OF YOUR EMPLOYEES CURRENT WITH THEIR FORM W-4??

Looking Beyond The Bank Line of Credit:
The Truth About Asset Based Lending For Growing Staffing Companies