Monday, March 19, 2012

Improving Capital Access – A Minority Business’s Alternative Approach


By Nic Perkin 

In business it takes money to make money. That is a plain and simple truth. Unfortunately, maintaining the reliable cash flow needed to invest in growth while keeping up with day-to-day financial obligations is a perennial problem for small and medium-sized businesses (SMBs), even in a strong economy.

The current lending environment has made it tougher than ever for SMBs to raise the cash needed to fund day-to-day operations or capitalize on upcoming growth opportunities.  Commercial bankers—especially the regional and community banks that do most of the small-business lending—haven’t fully loosened the tight lending restrictions they began imposing in 2007. Minority-owned businesses are disproportionately affected. According to the U.S. Department of Commerce, “inadequate access to financial capital continues to be a particularly important constraint limiting the growth of minority-owned businesses. The latest nationally representative data on the financing of minority firms indicates large disparities in access to financial capital. Minority-owned businesses are found to pay higher interest rates on loans. They are also more likely to be denied credit, and are less likely to apply for loans because they fear their applications will be denied.”

A lack of capital can be a major challenge to a minority business, but owners and executives who seek alternatives to traditional lending may be better suited to overcome these challenges, and better positioned for success. Take Eddie Ortega and Erik Espinosa, founders of United Tobacco Inc. in Sunrise, FL.  The two friends built their business into one of the most reputable and rapidly growing manufacturers and sellers of unique hand-made cigars.  Like many small companies, the early stages were mostly self-funded with support from a small bank line of credit.  As they started to blaze their trail in the industry, they also started to experience the difficulties of effectively managing their working capital to grow with them. The business had an established relationship with a local bank, so it never occurred to the owners that it would be difficult to increase the line of credit.

“Maintaining a stable business for the long term means having sufficient liquidity—even when you don’t have an immediate need,” said Mr. Ortega. “We hit a growth pattern that required us to enhance our cash flow position, but the bank was unwilling to increase our line at a reasonable rate despite our track record of profitability, our clear potential for growth and ability to repay the debt.” Without a reasonable means to access affordable capital it could have become difficult to maintain the current pace.

One potential source of financing is the working capital that small businesses have tied up in their outstanding receivables. What businesses have lacked is an efficient, economical way to access that resource. The Receivables Exchange, the world’s first electronic marketplace for online receivables financing, allows businesses like United Tobacco to monetize their accounts receivable in a real-time, online auction. Unlike other forms of receivables-based financing, The Receivables Exchange allows SMBs to sell invoices to multiple institutional investors, so they get competitive, market-driven pricing— 99-98 cents on the dollar, on average.

“When I heard about the Exchange, I was immediately intrigued by the possibility of increasing liquidity in a couple of days rather than months--and all without giving up the relationship [with our customers],” remarked Mr. Ortega. “My second auction sold in minutes and the funds were wired to us the very next day. It is remarkable to be able to get access to cash that fast.”
Using receivables in commercial finance transactions is not a new idea; they are widely used as a collateral component in business lines of credit, asset-based lending solutions and factoring deals. What’s different about online receivables financing is the way in which the transactions are structured.  Businesses sell their receivables directly to a global network of institutional Buyers, including hedge funds, commercial banks, asset-based lenders, and family offices. Sellers control the terms and timing of each auction by setting minimum advance and maximum fee amounts and the duration of the auction. They can also set a Buyout Price—similar to the “buy it now” price on an eBay auction. Sellers can track the bidding on their receivables in real time, 24/7, and the auction remains open for the amount of time stipulated or until the Buyout Price is met. Once the auction closes, the proceeds are wired into their business account the next business day.

Another key innovation of the online receivables financing approach is the lack of a long-term contract and other covenants and agreements. There are no all-asset liens, for instance, because the lien is on the receivable for sale. Unlike traditional factoring, a company’s customers are never notified that they are selling their customers’ invoices, so the business keeps control of the customer relationship.

Furthermore, online receivables financing does not require a personal guarantee on the invoices that are sold. Investors assess their risk based primarily on the credit rating of the selling company’s customers, not the credit rating of the company itself. Businesses are not judged by their short track record or lack of tangible collateral. Instead, they are able to leverage the credit quality of their customers to increase their short-term liquidity. Sellers do assume some obligations: If their customers do not pay, they have an obligation to repurchase those invoices.

The fact is, an undercapitalized business is vulnerable in any economy, and maintaining sufficient levels of liquidity is what keeps it healthy and less susceptible to a challenging and volatile economy.  Every day more companies like United Tobacco are turning to The Receivables Exchange’s online capital marketplace to turn their invoices into cash, giving them alternative ways to finance growth and increase liquidity.


Nic Perkin is co-founder and president of The Receivables Exchange, an online marketplace for sale and purchase of accounts receivable. The Receivables Exchange allows businesses to access working capital flexibly and affordably, without the constraints of traditional financing.

Monday, March 12, 2012

What Do Women Want? The $1 Million Question

by Akia Garnett, MBA

Recently, I was driving down a seemingly endless two lane highway and noticed a woman motorcycle rider taking a rest. As she began to drive away I noticed how she rode with the wind. She seemed to be enjoying every moment of the experience which brought a smile to my face. I thought about how far women in America have come as I drove to meet with a woman entrepreneur, the owner of Daily Task Takers, LLC, Danielle Hairston. Danielle was completing a business Vision and Mission Mapping™ process with me. We reflected on her business concept, which is an upscale concierge idea with the intent to help other visionaries convert daily intentions into lifetime achievements.
You see, Danielle’s business is not unlike many lifestyle businesses in this era, such as running errands to greeting you at your door with your favorite Starbucks blend. Basically, Daily Task Takers offers a variety of services, but one that really stands out is her Daily Wake Up Call service.
Customization is Key
Danielle has customized her call service to not only wake you up, but to greet you in the morning with what matters to you. You can customize the persona with her and so if you want a morning scripture read to you, a one – minute poem, the sound of a bugle, a pushy personal trainer of a coach screaming in your ear, or perhaps just the gentle voice of a nurturing grandmother, she does it. Danielle, like so many CEOs of lifestyle businesses, has decided that she will focus on visionaries who are pursuing their passions. Sure, there are apps for everything nowadays, including what Danielle is doing, but knowing that a real human is on the other end of the line, who knows enough about why you want to get up on time, why you don’t want to miss a meeting, or your commuter bus, why you need to get to the gym on time, or to have morning devotion, meditation or prayer, is what makes her incredibly unique.
The best part of this story is that as a woman CEO, Danielle has found a service that allows her to be the woman she wants to be, and for her clients, especially women, her services help them as well. The fact that we’re in a free country that allowed and allows her to be the entrepreneur she is should not be easily dismissed.
Connecting the Dots
Earlier this week the Seen and Sustained coauthors were interviewed on blogtalk radio show, A Measure of Truth. The host, Michael Fordham, asked a question regarding our timing on releasing the publication, which was in summary “What has changed in the marketplace?” His question was not unlike the questions that people are asking today regarding the economy, small business, and entrepreneurship. And his question is the same one that has led to the development of unique businesses, such as Danielle’s. My response to Michael was that the market has and will continue to shift toward the consumer as king and in response, consumers will continue to exercise their voice to dictate what, how and by whom they will buy products and services to accommodate the lifestyle they desire. When trying to understand consumers, specifically women, remember that they, “we”, want the same thing as men. We want to receive what we pay for, and we want what we pay for to fix the problem it is intended to fix.
Consumer Buying Behaviors
How women move through the consumer buying process from pre-consumption to consumption, and then post consumption varies based on more than their sex and emotion, but also culture, influence, values, status, and so many other variables. The most important thing to remember when marketing to women is that unlike in the past, when we don’t see what we want then we don’t have to decide on anything. The slightest detection of inauthenticity in voice, tone, positioning, intention, and representation of brand is enough to move women consumers from patron to past prospect.


Contributing Writer, Akia Garnett, MBA
Akia T. Garnett, MBA is CEO of Brandbuilder and CoAuthor of Seen and Sustained: Best Practices in Communication that Increase the Visibility of Small and Diverse Businesses. Visit Brandbuilder online at www.MasterYourBrand.com.
Learn more about the CoAuthors of the Seen and Sustained Community of Visionaries. Visit www.BestPracticesforSmallBusinesses.com
Click here to read the March 2012 edition of Seen and Sustained – The Newsletter.