In a broad sense, most loans can be divided into two basic types: an asset-based loan (ABL) and a cash flow loan. An ABL is made by a lender who underwrites the loan primarily by valuing the company’s assets, such as accounts receivable (A/R) and inventory. An ABL lender underwrites a loan based on the ability to liquidate its collateral should it need to. A “cash flow” lender, in contrast, while also secured against the borrower’s assets, underwrites the loan primarily based on the cash flow and general credit-worthiness of the borrower. The distinction between these types of loans is only the beginning of understanding the many types of loans available to a business, because within each of the two types there are many subtypes. This webinar takes the audience through a guided tour of the various borrowing options available to businesses, from both a business and legal perspective, to paint the overall landscape of the different types of lenders that exist and to provide a framework for understanding what type of lender and loan may make sense for any particular borrower. To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/what-kind-of-loan-2021/

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Practical and entertaining education for
attorneys, accountants, business owners and
executives, and investors.

4. Disclaimer
The material in this webinar is for informational purposes only. It should not be considered
legal, financial or other professional advice. You should consult with an attorney or other
appropriate professional to determine what may be best for your individual needs. While
Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate,
Financial Poise™ makes no guaranty in this regard.
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5. Meet the Faculty
MODERATOR:
Hajar Jouglaf - Sugar Felsenthal Grais & Helsinger LLP
PANELISTS:
Phil Buffington - Adams & Reese LLP
Harvey Gross - New York Institute of Credit
Arlene Martin - Huntington National Bank
Raffi Azadian – Azadian Group & Change Capital
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6. About This Webinar – What Kind of Loan?
In a broad sense, most loans can be divided into two basic types: an asset-based loan (ABL)
and a cash flow loan.
An ABL is made by a lender who underwrites the loan primarily by valuing the company’s
assets, such as accounts receivable (A/R) and inventory. An ABL lender underwrites a loan
based on the ability to liquidate its collateral should it need to. A “cash flow” lender, in
contrast, while also secured against the borrower’s assets, underwrites the loan primarily
based on the cash flow and general credit-worthiness of the borrower.
The distinction between these types of loans is only the beginning of understanding the many
types of loans available to a business, because within each of the two types there are many
subtypes.
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7. About This Series – Business Borrowing Basics
Many companies, and most of any size, use borrowed funds as part of their capital structure.
Depending on the nature of the business, its size, time in business, whether it has adequate
collateral, and other factors, a business has myriad options when borrowing funds.
This webinar series provides a guided tour of the various borrowing options available to
businesses, from both a business and legal perspective. Learn the advantages and
disadvantages of different types of loans, how to select the right loan for your business, how
to negotiate terms, and what happens in the event the loan is defaulted upon.
Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and
executives without much background in these areas, yet is of primary value to attorneys, accountants, and other
seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to
entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that
participants will enhance their knowledge of this area whether they attend one, some, or all episodes.
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8. Episodes in this Series
#1: What kind of loan?
Premiere date: 6/3/21
#2: Basic Concepts Applicable to All Borrowers & Lenders
Premiere date: 7/8/21
#3: Alternative Structures- PO Financing, Factoring & MCA
Premiere date: 8/5/21
#4: Dealing With Defaults
Premiere date: 9/9/21
#5: Trade Finance Basics
Premiere date: 10/7/21
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9. Episode #1
What Kind of Loan?
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10. Neither a Borrower nor a Lender BE; for a Loan
Often Loses Both Itself and a Friend?
• Equity v. Debt
• Secured v. Non-Secured
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PROS CONS
Equity Raise - Increased liquidity
- Strategic
Partnerships
- Ownership dilution
- Outside influence /
control
Debt Raise - “Less Expensive”
than Equity
- Retain equity
ownership
- Increased leverage
=> Increased risk
- Debt needs to be
repaid

11. Historically, Major Distinction Among Lenders
• Cash Flow- principal underwriting analyzes the amount of loan, credit history, cash flow
• Asset-Based (Collateral-Based)
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12. Another Major Distinction Among Lenders
• Regulated:
 Traditional sources of capital (e.g. Banks) - various degrees of SEC mandates
• Unregulated:
 Operate independently of SEC
 Increased flexibility on structure, industry, credit risk
 Fill voids that regulated lenders do not service
 Often higher costs of capital
12

13. Historical Cash Flow Lenders
• Banks
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14. Historical Asset-Based (Collateral-Based) Lenders
• Asset-based lending group within banks
• Specialty asset-based lenders
 Equipment Lender
 PO Financer
 Factor
 Merchant Cash Advance Funder
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15. Commonalities Among All Types of Asset-Based
Lending (ABL)
• An ABL is a loan secured by borrower’s assets
• A borrower receives this type of financing by offering inventory, accounts receivable
and/or other assets as “collateral”
• Article 9 and state foreclosure law incredibly important here
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16. SBA Program
• Small Business Administration (SBA) government guaranteed loan program
• Loans are funded with a participating bank
• Type of SBA loans
• 7(a)
• 504
• Express
• Quick Express

17. Specialty Asset-Based Lenders – Equipment
Financers
Loan v. Lease:
• Straight Loan- a/k/a:
 Equipment Finance Agreement
 Capital Lease
 Finance Lease
• Lease
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18. Specialty Asset-Based Lenders – Equipment Loans
• Equipment shown as an asset on balance sheet and depreciated
• Payments not fully tax deductible
• Finance Lease
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19. Specialty Asset-Based Lenders – Equipment Leases
• Lower payments than equipment loans
• Payments usually fully tax deductible
• Fair Market Value (FMV) residual = purchase price at end of lease
19

20. Specialty Asset-Based Lenders – PO Financier
• Purchase order finance lending involves financier paying supplier of another company
(i.e. the “borrower”) for goods that have been ordered to fulfill a job for a customer
• At the end, the PO financier may collect the invoice from the “borrower’s” customer.
Often, the PO financier may handle the purchase order but not the A/R
• PO financier makes its money by charging “borrower” various fees - which are taken out
of the collected invoice, then the remaining amount is returned to the “borrower”
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21. Specialty Asset-Based Lenders – PO Financier
• Who uses PO financing & when?
 Distributers
 Wholesalers
 Resellers
 Importers or exporters of finished goods
 Outsourced manufactures
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22. Specialty Asset-Based Lenders – PO Financier
• Generally, PO financing is used during the following times –
 Seasonal Sales Spikes - at the beginning of a seasonal sales spike where a
business might receive purchase orders that exceed the working capital
 Substantial Growth – if sales growth is outpacing the business’s small business
lines of credit
 Consistently Tight Cash Flow – it’s normal for businesses to have many cash flow
problems at certain times of the month on a consistent basis
22

23. Specialty Asset-Based Lenders – PO Financier
• What to submit to get approved for a PO finance loan -
 Generally, a business needs to submit basic and corporate financial information,
such as –
 Purchase order from its customer
 Pro-forma invoice from its vendor
 An understanding of payment terms and lead teams
 Overall, the more details a business presents regarding its financial books, the
easier it will be to receive a PO finance loan
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24. Specialty Asset-Based Lenders –
PO Financier
Source:
https://fitsmallbusiness.co
m/purchase-order-
financing/#
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25. Specialty Asset-Based Lenders – Factor (Lending on A/R)
• Factoring is a transaction in which a business sells its invoices, receivable, to a third
party known as a “factor”
• The factor collects payments on those invoices from “borrower’s” customers (i.e. account
debtors)
• Companies that decide to factor want to receive cash quickly on receivables, rather than
waiting 30 to 60 days for a customer to pay
• Credit decision primarily on credit worthiness of account debtors
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26. Specialty Asset-Based Lenders – Factor (Lending on A/R)
• Who uses factoring and when? A business may be a good candidate for factor lending if…
 A business that may have a hard time getting bank loans – smaller businesses often
don’t have the collateral to pursue bank options; factoring allows for financing flexibility
that banks do not offer and for security that crowdfunding cannot
 A business that is burdened with cash flow issues
 A business seeking to take large accounts, but that does not have the capital to do so
 Factors will normally require a business to sell A/Rs free and clear of liens.
Releases/inter-creditor agreements may be needed.
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27. Specialty Asset-Based Lenders – Factor (Lending on A/R)
• Who uses factoring and when? Types of industries that may benefit from A/R financing –
 Businesses that are awarded government contracts
 Textile/clothing manufacturers
 Trucking companies
 Construction companies
 Temp agencies/employment agencies/recruitment agencies, etc.
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28. Specialty Asset-Based Lenders – Factor (Lending on A/R)
• Who uses factoring and when? When is it a good time to lend on A/R?
 When you need cash immediately to fund business growth
 When you don’t qualify for bank loans due to poor credit or low bank balances
 When you want to focus on growing your business rather than managing your
business
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29. Specialty Asset-Based Lenders – Factor (Lending on A/R)
• What do I need to submit to be considered for a factor (lending on A/R) loan?
 Accounts receivables/ payable aging report
 Articles of organization or incorporation
 Completed invoice factoring application
• The more financial transparency you can offer to the factoring company, the better
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30. Specialty Asset-Based Lenders – Factor (Lending on A/R)
Source:
https://www.bluevin
e.com/accounts-
receivable-
factoring-guide-
factoring-invoices
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31. Specialty Asset-Based Funders – Merchant Cash
Advance (MCA) Lender
• An MCA is an advance transaction based upon the future revenues or credit card sales of
a business
• Generally, rates on MCA are typically higher than other alternative lending options.
However, recent entrants to the space are offering MCAs and rates comparable to traditional
lending products (AMEX, Square)
• An MCA provider looks at a business’s daily credit card receipts to determine whether the
business can pay back the advance in a timely manner
31

32. Specialty Asset-Based Funders – Merchant Cash
Advance (MCA) Lender
• Who uses MCA?
 Restaurants
 Food service businesses
 Small clothing retailers
• When is it best to use a merchant cash advance?
 It’s recommended that borrowers exhaust other financing options prior to resorting to
an MCA – primarily because they offer much higher rates than other alternative
financing options
 MCA are a good option for small business who do not qualify for traditional or
alternative loans
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33. Specialty Asset-Based Funders – Merchant Cash
Advance (MCA) Lender
• What to submit to be considered for a merchant cash advance?
 It depends on the lender. Generally, MCA lenders have required at least–
 A business to have run for at least one (1) year
 A business accepts credit cards and processes at least a few thousand dollars
per month
 You are seeking at minimum about $10,000 in funds
 3-6 months of a business’s most recent credit card processing statements
 3-6 months of a business’s most recent bank statements;
 A copy of the borrower(s) driver’s license
 Completed application signed by principals/owners of the business
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34. Specialty Asset-Based Funders – Merchant Cash
Advance (MCA) Lender
Source:
https://www.nationalpaymentpr
ocessing.com/education-station-
index/what-is-a-merchant-cash-
advance-mca
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35. Specialty Asset-Based Funders – Alternative Small
Business Loans
Alternative Small Business Loans – Fixed Daily ACH payments from the business bank
account with rates similar to that of MCAs. Used by businesses that may not qualify for or
want traditional lending products but do not take credit cards as a form of payment. Different
from an ACH MCA in that the business owner guarantees repayment of the loan regardless of
the business’ performance.
35

36. Specialty Asset-Based Funders – Hard Money
Lenders (Lenders of Last Resort)
• A hard money loan is asset-based financing where the borrower receives funds secured
by real property – it’s a short-term loan that typically ranges from 3-12 months; the longer the
loan, the higher the interest rate
• Generally, these loans come from investors or lenders based in part on the property you
are using as collateral
• Hard money loans provide access to capital to purchase investment properties – they
can be funded quickly (typically within 48-72 hours)
• When a business exhausted tradition and alternative financing options, a hard money
loan may be the only option left
36

37. Specialty Asset-Based Funders – Hard Money
Lenders (“Lenders of Last Resort”)
• Who uses hard money?
 Developers and “house flippers”
 Real property purchasers
 Construction companies
• When should a business resort to a hard money loan?
 When it has exhausted ALL other options…
 When it needs money fast…
37

38. Specialty Asset-Based Funders – Hard Money
Lenders (Lenders of Last Resort)
• What to submit to qualify for a hard money loan?
 Loan submission form
 Purchase contract
 Preliminary title report
 Identification – i.e. driver’s license
 Proof of funds
 Proof of insurance
 Rent/lease rolls for commercial properties
 Sometimes, interior and exterior photos of the property
38

39. Specialty Asset-Based Funders – Hard Money
Lenders (Lenders of Last Resort)
• LTV (Loan to Value Ratio) – represents an amount borrowed as compared to cost or
value of the property being purchased
• ARV (After Repair Value) – the estimated value of the property after renovations
• Source: https://fitsmallbusiness.com/financing-reo-properties/
39

40. Marketplace Lender / Fintech
• Marketplace lending is a conglomeration of a typically online non-bank financial
institutions that provide customers with faster and cheaper ways to obtain a business loan
• Financial technology, better known as “fintech,” describes a business that aims to provide
financial services by making use of software and modern technology
• Examples of marketplace lending/Fintech companies:
 Quicken Loans
 LendingClub
 Kabbage
 Crowdfunding
40

41. Impact of COVID-19 on Lending Market
• Inflation
• Previously relaxed credit arrangements may become more structured
• Reliability of borrower’s historical projections

42. Traditional and Non-Traditional Underwriting
• Traditional underwriting
 Historical cash flow
 Tangible collateral
 Business and personal credit
 Management team and experience
• Non-Traditional underwriting
 Management team / business model
 Collateral
 Cash flow – balance of historical and projected
42

43. A Few Things to Consider When Choosing an
Alternate Lender
• Contract Terms
 Term, interest rates, and other terms prior to settling on an alternative lender
• Notification
 In PO financing and factoring, lender will notify borrower’s customers regarding the
financing transaction.
• Services
 Can alternative lender make it easier to build business rather than be a nuisance?
• Convenience and speed
• Cost
 Some financers advertise low costs but hide other fees that can quickly raise real
costs
43

44. About the Faculty
44

45. About The Faculty
Hajar Jouglaf - hjouglaf@sfgh.com
Hajar Jouglaf is an associate at Sugar Felsenthal Grais & Helsinger who collaborates with
clients to identify and resolve critical issues when dealing with distressed situations. Hajar
also sits on the board of the Chicago Network of the International Women’s Insolvency &
Restructuring Confederation.
45

46. About The Faculty
Phil Buffington - Phil.Buffington@arlaw.com
Phil Buffington joined Adams and Reese in 2011 and serves as Leader of the Financial Services
Team, and is a Partner in the Transactions Practice Group. For more than 30 years, Phil has
served as a trusted advisor to community, regional and national financial institutions, and he
routinely helps these institutions assess and analyze regulatory and litigation risks, including
issues involving:
His practice is focused primarily on the representation of financial institutions in corporate
governance, transactional and bankruptcy matters. He serves on the Adjunct Faculty Staff of
Mississippi College School of Law (Banking Law and Business Planning) and also serves as a
Faculty Member at the Mississippi School of Banking (Commercial Lending I and II). He is a
frequent speaker and presenter for CLE and other courses on topics related bank regulatory
matters, commercial lending, secured transactions and other banking topics.
46

47. About The Faculty
Harvey Gross - info@instituteofcredit.org
Harvey Gross is the founder and president of HSG Services Inc. He was formerly a Vice President with
NationsBanc where he was wholesale credit manager, wholesale team leader and account executive. He
supervised in sales, marketing and insolvency recoveries. Among Mr. Gross’s many roles: Member of the
American Arbitration Association, Faculty of Parsons School of Design of New School University, Current
Board Member Turnaround Management Association – New Jersey Chapter, Past Chairman Turnaround
Management Association – New Jersey Chapter, Past Board Member of National TMA, Board of
Directors – 475 Esquire Toppers Credit Club, Past President of 475 Esquire Toppers Credit Club, Board
Member Business- Exchequer- Metropolitan -111 Credit Club, Managing Director of the New York
Institute of Credit, Former Senior Vice President – Harborcove Financial LLC, Chief Operating Officer and
Executive Vice President – Cyber Security Auditors & Administrators LLC, Executive Director IFA
Northeast Chapter. Mr. Gross is Past President of the Exchequer/Metropolitan Credit Club, the Uptown
Credit Group and the American Credit Club. In 2000 he was honored by the B’nai Brith Banking and
Finance Division with the Distinguished Achievement Award. In 2010 he was awarded by the TMA …
Outstanding Individual Contribution Award.
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48. About The Faculty
Arlene Martin - Arlene.Martin@huntington.com
Arlene has been in the financial industry since 1988, ranging from Business
Banking/Commercial Lending to Commercial Real Estate. As an SBA Lender with Huntington
Bank, she has determined that there is a great need for business owners to gain access to
capital. It is most often a critical component to the success of businesses during start up and
growth periods. She enjoys working with a range of businesses with gross revenues and is
very well versed in federal loan programs (SBA Lending) and the state lending programs that
are very advantageous for business owners. In addition, she has a strong background in
commercial real estate. She believes in supporting the entrepreneurial business owners that
have emerged and now become the backbone of our country. Her specialties include small to
mid-size businesses, and she focuses on a variety of industries including manufacturers,
service industries, franchise operations, as well as contractors.
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49. About The Faculty
Raffi Azadian - raffi@change.capital
Raffi Azadian is the Founder and CEO of Change Capital, a social impact investor and capital
provider with a focus on businesses that provide innovative, sustainable, socially-responsible,
and ethically-produced products and services and those that are owned and successfully
operated by minorities, women, immigrants, and the physically challenged. Prior to founding
Change Capital, Raffi spent over 13 years in technology, venture capital, and investment
banking. Specialties: equity and debt financing, asset-based lending, small business funding,
commercial credit, M&A, equipment financing, equipment leasing, purchase order financing,
accounts receivable financing, factoring, inventory financing, deal origination, business
development, due diligence/advisory services, market research, philanthropy, impactful
giving, socially-responsible investing.
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50. Questions or Comments?
If you have any questions about this webinar that you did not get to ask during the live
premiere, or if you are watching this webinar On Demand, please do not hesitate to email us
at info@financialpoise.com with any questions or comments you may have. Please include
the name of the webinar in your email and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes
only. It has been prepared primarily for attorneys and accountants for use in the pursuit of
their continuing legal education and continuing professional education.
50

51. About Financial Poise
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