Programs For Capital Deployment

New Markets Tax Credit Program (NMTC) For Small and Midsize Businesses (SMBs)

Imagine Having from $1,000,000 To $5,000,000 To Improve Your Business

• #1 Most Popular Use Is To Consolidate All Existing Eligible Debt. This Does Wonders For Improving Cash Flow.
• Better Than Average Rates – Similar To Bank Rates
• Eliminate High-Interest Equipment Leases
• Eliminate High-Interest Asset-Based Loans or Invoice Factoring
• Eliminate Lease Payments For Your Building By Purchasing It
• Expand Your Business Through Acquisition
• Expand Your Business Through Hiring

Since the lender is typically not a bank, the underwriting requirements may be far more flexible. They have the ability to overcome the following obstacles that traditional lending programs cannot:

• Projection-based Business Plan
• Zero Origination Fees
• High Loan to Value
• Low Debt Service Coverage
• Large Working Capital Needs
• Interest-Only Payments or Potentially Smaller Amortization Payments
• Not Fully Secured with Available Collateral
• Below Market Interest Rates (could be close to WSJ Prime for qualified companies)

There are numerous qualifications that must be met that have nothing to do with your business's creditworthiness:

• The location of your business must be located in a qualified zone, as prescribed by NMTC. We hear all the time from prospective borrowers that their community is not in a low-income area. From what we observe, qualified NMTC tracts do not seem to follow traditional thought, as one side of a street may qualify and the other side does not. Although the source we use is not the final determinate, a quick phone call to us can at least give a preliminary indication of the likelihood of geographic qualification.
• The majority of your employees and revenue must be generated within the NMTC qualified zone. This means that companies with a mobile sales force, transportation companies, companies with multiple locations, companies in which much work is completed offsite, etc., will have difficulty qualifying.
• The category of your business must not be in any of the following: Liquor anything (restaurants are possible with the right mix of business), country clubs, suntan facilities, hot tub facilities, massage parlors, racetracks, gambling, farming, software or other licensing activity, and collectibles.
• There are restricting rules concerning Non-Qualified Financial Property (less than 5%).  Loans on the books to shareholders/owners can sometimes be problematic.
  

New Markets Tax Credit Program (NMTC) For Large Corporations:

This method of deploying NMTC capital uses the traditional forgivable loan format. If your company has significant capital expenditures the preceding 24-months and/or a need for significant new capex, please call ASAP. 

SBA 7a:

The SBA loan is a fantastic way to acquire capital when attempts through a traditional lender have failed. What? You've been denied an SBA loan already? The borrower should always remember that the SBA is typically not the one rejecting the loan application due to creditworthiness (SBA acts as a compliance entity that ensures the borrower and his company are eligible); it is usually the lender's criteria that the borrower failed to meet. So, just because a borrower is turned down for an SBA loan at one lender does not mean he cannot be successful at another financial institution. 

Many times, SBA loans sourced through Flexible Capital Solutions are projection-based. This means we are looking at where your company is going and not where it has been. We are also looking at your projected cash flow and not necessarily your existing collateral. Can you pay your monthly payment going forward? It's almost that simple.

All that said, there are some deal killers that will prevent you from getting an SBA loan. These two items listed are not all-inclusive, but these are the ones I see the most:

• One of the owners of your company has previously caused the government to lose money on a loan (SBA, FHA, Student Loans). 
  
• A spouse kills the deal at the kitchen table because he/she refuses to pledge the residence on your loan that is not 100% secured by other collateral. Almost all our clients have not had loans that are 100% secured.
  
• A business or project is not eligible.

SBA 504:

While our lenders do participate as the 3rd party lender within the 504 transaction, it is not a focus of Flexible Capital Solitions/ Most of our borrowers choose the 7a program due a few nuances of the 504 program such as the 10-year prepayment penalty.

USDA Business & Industry Program:

For companies located within rural communities, this program is fantastic for larger loans - up to $25 million.

Asset-Based Loans:

It is probably obvious, but Asset-Based Loans (ABL) are loans against business assets. Assets used as collateral are usually inventory, equipment, real estate, and accounts receivable. ABLs and Factoring are more expensive than the SBA 7A - NMTC loan program illustrated above but are much easier for which to qualify. 

An ABL is structured as a Line of Credit (LOC) based on company assets. A simple ABL will have an origination fee and an ongoing prime plus component as the interest rate. This type of lending is typically less expensive than factoring, but that is not always the case. There is a laundry list of fees that may be added that results in the ABL being of similar cost as factoring and an ABL in name only. In our minds, the ABL should fill the gap between SBA loans described above and factoring with your company's financials being the determinate for the appropriate solution.  Determining your TRUE COST of financing, when all fees are considered, is necessary to make an intelligent decision for choosing a financial partner. 

UPDATE: We have located an invoice finance option that only charges interest on the outstanding balance with no hidden fees or upfront BS fees! No contract or monthly minimum. This is the best we have ever seen in our 17+ years of advising clients. The rate ranges from 9.95% for companies approaching $20MM in revenues to 15-18% for the smallest companies and/or increased risk. 

Factoring:

Factoring is a subset of ABL. It is a straight forward cash flow enhancement tool. In its simplest form, a typical credit card transaction is essentially factoring a receivable. In other words, 97-98% of the sale is deposited into your bank account the day after the transaction, and the customer pays the credit card company at some point in the future.  Granted, this would be an example of non-recourse factoring (see below) since the credit card company assumes the credit risk of the customer.

The credit card analogy was used to convey the concept. In reality, the factoring world is littered with companies offering variations of the simple concept. The selection of which company to provide this solution is paramount to your company's success. The vast array of different programs on the market today can be daunting. If you choose wrong, your business can suffer devastating consequences. Besides the fee negotiation, and it IS a negotiation, there is the fact that the company selected will have the right to contact and interact with your customers!  Some companies do a great, courteous job at this...and some do not. Companies that interact with your customers in a positive manner, can benefit your company immensely, as they perform credit checks, invoicing, and collections as a part of the financing fee.  Some companies can even perform back-office payroll functions, as well.

Types of notifications include:

• Notification: The factoring company actually purchases your invoice at a discount, stamps it in red ink that they now own that invoice, and mails it to your customer for payment to their address.
• Non-notification: The factoring company funds the invoice, but the operating company is performing the invoicing and collections in-house.
• Soft notification: The factoring company may send a notice to your customer that details instructions for the payment of invoices to their address. They then perform all A/R management functions similar to notification factoring without the red stamp on each invoice. In other words, the name of your business is still on the invoice, but the payment address is that of the factor.

Types of liability agreements:

• Recourse: If one of your customers does not pay an invoice, you will be responsible and the amount will be deducted from future fundings.
• Non-recourse: If one of your customers does not pay an invoice, the factor will assume responsibility for the loss. 

The selection of the appropriate financial partner and the negotiation of the terms of the solutions provided can be the difference between the success of your business and failure. We can help!