Alternative Funding · Asset Based Financing - Factoring “Factoring”, or “Accounts Receivable Financing” is a transaction in which a business sells its invoices, or receivables,

Alternative Funding

Alameda County SBDC

Fremont Library

February 6, 2018

Our Panelists

Name Organization

Jenny Kassan Jenny Kassan Consulting

Carlos Quintanilla Opportunity Fund

Bruce Taylor East Bay Factors

Hon Wong Tech Futures Group

Lee Lambert Alameda County SBDC

Asset Based Financing - Factoring

“Factoring”, or “Accounts Receivable Financing” is a

transaction in which a business sells its invoices, or

receivables, to a third-party financial company known as a

“Factor”

1. The business is paid 75-90% of the invoice upfront.

2. The Factor then collects payment on those invoices

directly from the customers (possible arrangements

can be made to make it look like they are paying the

business directly)

3. The Factor remits the payment to the business less a

fee.

Asset Based Financing - Factoring

Why Factor?

Can be a relatively fast way to access cash through

tight periods

Does not require good credit – the credit quality of your

customers is more important

Can operate as a credit line to be used only when

needed

Does not appear as debt on your balance sheet

Asset Based Financing - Factoring

US factoring market is estimated at $125 billion/year

Fees and rates vary – generally in the 3% per month

range

Company is usually responsible to “make good” if the

invoiced party does not pay its full amount due

Asset Based Financing

Industries that are heavy users of factoring include:

Freelancers (marketing and creative)

Staffing Companies

Distributors

Small Manufacturers

IT Services and Software Development

Shipping and Transportation

Construction and Contractors

Asset Based Financing

Important Terms:

Recourse

Reserve Account

Reserve amount

Rebate

Verification

Notification

Online “Fintech” Lenders

Very dynamic area, changing constantly

Great convenience, but most often at much higher rates

than if you went through a longer process with a

traditional lender – know your rate!

Beware! There are lenders charging 40-100% APR –

you don’t have consumer protections as a business –

this is not a suitable long-term solution

However, some lender are streamlining the process

using technology and web-based solutions, so not all

are at the high rates

Online Lender Models

Online Lending

Huge number of choices, continuing to change and

evolve at a rapid pace

Many new VC and privately funded start-ups still

entering the market

For business loans, need 1-2 years in business to

qualify

Rates range 6% - 99%

More established lenders:

Lending Club, Funding Circle, Prosper

Direct Lenders: OnDeck, Kabbage, Fundation

(Note: Very expensive – APRs can approach 100%)

Online lenders can save you time

In the vast majority of cases, a bank, credit union or

SBA loan will be lower cost if you qualify

SBIR/STTR Participating

Agencies DOD SBIR/STTR

HHS SBIR/STTR

NASA SBIR/STTR

DOE SBIR/STTR

NSF SBIR/STTR

DHS SBIR

USDA SBIR

DOC SBIR

ED SBIR

EPA SBIR

DOT SBIR

TOTAL ~ $3B

THANK YOU!