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Overlooked	
  &	
  Misunderstood	
  
Capital	
  Sources	
  
Kevin	
  Laborde	
  
President	
  
Cash	
  Flow	
  Resources,	
  L.L.C.	
  
	
  
Today’s	
  Objec;ves	
  
•  Cash	
  versus	
  Profits	
  
•  Equity	
  Investments	
  versus	
  Debt	
  (Loans)	
  
•  Tradi<onal	
  Sources	
  of	
  Capital	
  
•  Non-­‐Tradi<onal	
  Sources	
  of	
  Capital	
  
2	
  
Se<ng	
  the	
  Stage	
  
•  First	
  a	
  LiEle	
  Background	
  &	
  Context	
  
– Drivers	
  of	
  Funding	
  Needs	
  
– Basic	
  Financial	
  SoluAons	
  
– How	
  They	
  Differ	
  
– ExpectaAons	
  of	
  Stakeholders	
  
•  Capital	
  	
  
– TradiAonal	
  Sources	
  v	
  Non-­‐TradiAonal	
  Sources	
  
– Non-­‐TradiAonal	
  Sources	
  You	
  Need	
  to	
  Know	
  
3	
  
Cash	
  versus	
  Profits	
  
•  So	
  I	
  sell	
  my	
  product	
  or	
  service	
  for	
  more	
  than	
  
its	
  cost:	
  
– I	
  generate	
  a	
  profit	
  
– I	
  have	
  liOle	
  or	
  no	
  Cash	
  	
  
•  Where	
  is	
  the	
  cash	
  from	
  my	
  profitable	
  opera<ons?	
  
– Inventory	
  
– Receivables	
  
– Work-­‐in-­‐Process	
  
– New	
  Equipment	
  
– Debt	
  Payments	
  
	
  	
  
4	
  
Cash	
  Opera;ng	
  Cycle	
  
5	
  
Cash	
  is	
  King	
  
•  What	
  is	
  a	
  Good	
  Customer?	
  
– Capable	
  and	
  Willing	
  to	
  Pay	
  
•  Credit	
  Terms	
  for	
  Customers	
  
– Are	
  they	
  worth	
  it?	
  
•  Trade	
  Credit	
  from	
  Vendors	
  &	
  Suppliers	
  
– Can	
  you	
  get	
  it?	
  
•  The	
  Balancing	
  Act	
  
•  Based	
  on	
  What	
  You	
  Have,	
  What	
  Do	
  You	
  
Need?	
  
6	
  
Equity	
  vs.	
  Debt	
  (Loans)	
  
•  You	
  Need	
  Capital	
  to	
  Operate	
  
•  Poten<al	
  Capital	
  Sources:	
  
– Equity	
  (Investment	
  in	
  Ownership	
  of	
  EnAty)	
  
– Debt	
  	
  	
  
•  Think	
  Both	
  Ends	
  of	
  the	
  Spectrum	
  
•  Both	
  Inject	
  Capital	
  into	
  a	
  Business	
  
•  Both	
  Have	
  an	
  Expecta<on	
  of	
  Return	
  
•  You	
  Must	
  Understand	
  Those	
  Expecta<ons	
  
7	
  
Equity	
  vs.	
  Debt	
  (Loans)	
  
•  One	
  has	
  a	
  Fixed	
  Return	
  (Debt)	
  
•  One	
  has	
  a	
  Poten<ally	
  Infinite	
  Return	
  to	
  
Investor	
  (Equity)	
  
•  One	
  Leverages	
  Returns	
  (Debt)	
  
•  One	
  Dilutes	
  Your	
  Ownership	
  (Equity)	
  
•  Which	
  is	
  Best	
  for	
  Your	
  Business?	
  
8	
  
Equity	
  Investments	
  
•  What	
  do	
  Equity	
  Investors	
  seek?	
  
– Percentage	
  Ownership	
  
– Control?	
  
– Competent	
  Management	
  
– Growth	
  Opportuni<es	
  –	
  Scalable??	
  
– An	
  Exit	
  Strategy	
  
•  The	
  Sky	
  is	
  the	
  Limit	
  –	
  Infinite	
  Poten<al	
  !!	
  
9	
  
Tradi;onal	
  Bank	
  Financing	
  
•  Who	
  provides	
  Credit?	
  BANKS!	
  
•  Loans	
  and	
  Lines	
  of	
  Credit	
  
•  What	
  makes	
  a	
  Loan	
  a	
  Loan?	
  
– Fixed	
  Contract	
  to	
  Repay	
  
– Primary	
  and	
  Secondary	
  Sources	
  of	
  Repayment	
  ***	
  
– Leverage	
  Owner	
  Returns	
  with	
  OPM	
  
10	
  
Tradi;onal	
  Sources	
  of	
  Capital	
  -­‐	
  Debt	
  
•  Underlying	
  En<ty	
  Must	
  be	
  UnderwriEen	
  For	
  
Debt	
  
	
  
•  How	
  the	
  En<ty	
  Is	
  UnderwriEen:	
  
– The	
  5	
  Cs	
  of	
  Credit:	
  
• Character,	
  Capacity,	
  Capital,	
  Collateral,	
  
CondiAons	
  
– The	
  4	
  Ps	
  of	
  Credit:	
  
• Purpose,	
  Payment,	
  ProtecAon,	
  People	
  
11	
  
Tradi;onal	
  Sources	
  of	
  Capital	
  -­‐	
  Equity	
  
•  Underlying	
  En<ty	
  Must	
  be	
  UnderwriEen	
  For	
  
Equity	
  Contribu<ons	
  -­‐	
  Think	
  “Shark	
  Tank”	
  
•  For	
  Investor	
  to	
  Provide	
  Equity:	
  
– Market	
  Opportunity	
  
• Considers	
  CompeAAon,	
  Barriers	
  to	
  
Entry,	
  DifferenAaAng	
  AOributes,	
  
Scalable?	
  
– Core	
  Competencies	
  of	
  Management	
  
• Ability	
  To	
  Execute	
  
12	
  
Capital	
  Availablity	
  
•  If	
  Credit	
  Availability	
  is	
  Too	
  Low	
  or	
  Unavailable	
  
OR	
  
•  If	
  Equity	
  Investor	
  Requirements	
  Do	
  Not	
  Fit	
  
OR	
  BOTH	
  
	
  
IT	
  MAY	
  BE	
  TIME	
  TO	
  LOOK	
  ELSEWHERE	
  
13	
  
Non-­‐Tradi;onal	
  Financing	
  
• Non-­‐Tradi<onal	
  Financing	
  Provides	
  
Entrepreneurs	
  with	
  Tools	
  to:	
  
–  Validate	
  Business	
  Model	
  
–  Grow	
  Businesses	
  to	
  Create	
  a	
  Larger	
  Cri<cal	
  Mass	
  
–  Provide	
  Demonstrable	
  Results	
  to	
  Poten<al	
  
Investors	
  and	
  Lenders	
  
	
  
14	
  
Non-­‐Tradi;onal	
  Financing	
  
•  Some	
  of	
  the	
  Underwri<ng,	
  Evalua<on	
  	
  
Methods	
  and	
  Requirements	
  are	
  the	
  Same	
  as	
  
for	
  Tradi<onal	
  Sources	
  
•  The	
  Difference	
  Comes	
  in	
  How	
  this	
  Same	
  
Informa<on	
  is	
  U<lized	
  
15	
  
Non-­‐Tradi;onal	
  Financing	
  
•  U<lizes	
  the	
  Balance	
  Sheet	
  Strength	
  of	
  
Another	
  Party	
  to	
  Make	
  Things	
  Happen	
  
•  Products	
  Offered	
  Typically	
  Do	
  Not	
  Require	
  
the	
  Same	
  Client	
  Characteris<cs	
  of	
  Tradi<onal	
  
Sources	
  
•  Providers	
  are	
  Generally	
  Seeking	
  Returns	
  
Higher	
  than	
  Tradi<onal	
  Sources	
  
•  Providers	
  are	
  Taking	
  More	
  RISK	
  
16	
  
Non-­‐Tradi;onal	
  Financing	
  
•  Non-­‐Tradi<onal	
  Programs	
  Work	
  Because	
  
Capital	
  is	
  Employed	
  Using	
  Different	
  
Approaches	
  to	
  Control	
  Risk	
  
•  Transac<on	
  Specific	
  Factors	
  Take	
  the	
  Place	
  of	
  
Tradi<onal	
  Underwri<ng	
  Principles:	
  
– Largely	
  independent	
  of	
  the	
  underlying	
  enAty	
  
– Specific	
  to	
  the	
  asset/transacAon	
  being	
  funded	
  
17	
  
Major	
  Forms	
  of	
  Alterna;ve/	
  
Non-­‐Tradi;onal	
  Financing	
  
•  Factoring	
  A/R-­‐	
  (Think	
  Visa/MC	
  versus	
  Cash	
  
Sales	
  or	
  A/R)	
  
•  Purchase	
  Order	
  (P.O.)	
  Funding	
  -­‐	
  on	
  	
  
CommiEed	
  Product	
  Sales	
  and	
  Manufactured	
  
Products	
  
•  Both	
  of	
  These	
  Accelerate	
  a	
  Company’s	
  Cash	
  
Flow	
  Cycle	
  
18	
  
•  Merchant	
  Advances	
  on	
  Credit	
  Card	
  Sales	
  
•  Hard	
  Asset	
  Lending	
  Against	
  Real	
  
Property	
  
•  Equipment	
  Leasing	
  
19	
  
Other	
  Forms	
  of	
  Alterna;ve/	
  
Non-­‐Tradi;onal	
  Financing	
  
Factoring	
  
•  Basically	
  Means	
  the	
  Sale	
  of	
  a	
  Commercial	
  
Invoice	
  
•  Available	
  to	
  Companies	
  Selling	
  Goods	
  and	
  
Services	
  to	
  Other	
  Companies	
   	
  (B	
  to	
  B)	
  
•  Purchaser	
  (Factor)	
  Buys	
  Invoices	
  from	
  Seller	
  
at	
  a	
  Discount	
  When	
  Seller	
  Has	
  Cash	
  
Requirement	
  
•  Seller’s	
  Customers	
  (“Debtors”)	
  Remit	
  
Payment	
  Directly	
  to	
  Factor	
  
20	
  
Factoring	
  
•  Discoun<ng	
  Invoices	
  is	
  Similar	
  to	
  What	
  
Happens	
  When	
  Firms	
  Accept	
  Credit	
  Cards	
  for	
  
Payment	
  
•  Debtor	
  Dependent	
  Underwri<ng	
  
•  Self	
  Liquida<ng	
  Obliga<on	
  –	
  “Not	
  Debt”	
  
•  Accelerates	
  the	
  Cash	
  Flow	
  Cycle	
  
21	
  
Cash	
  Opera;ng	
  Cycle	
  
22	
  
Factoring	
  Advance	
  
•  Client	
  Sells	
  Product	
  or	
  Service	
  and	
  Sends	
  
Invoice	
  to	
  Customer	
  (“Debtor”)	
  
•  Client	
  Submits	
  Invoice(s)	
  to	
  Factor	
  for	
  
Funding	
  
•  Factor	
  Verifies	
  the	
  Invoice	
  with	
  Debtor	
  
•  Once	
  Verified,	
  Factor	
  Advances	
  Funds	
  to	
  
Client	
  Based	
  on	
  a	
  Pre-­‐established	
  Advance	
  
Rate	
   23	
  
Factoring	
  Repayment	
  
•  Debtor	
  Remits	
  Payment	
  to	
  Factor	
  to	
  SeEle	
  
Advance	
  on	
  Invoice	
  
•  Once	
  Advance	
  is	
  SeEled	
  Factor	
  Remits	
  Any	
  
Percentage	
  Held	
  in	
  Reserve	
  to	
  Client	
  Less	
  
Fees	
  
•  Cost	
  of	
  Factoring	
  Impacts	
  Opera<ng	
  
Margin	
  of	
  Client	
  
24	
  
Purchase	
  Order	
  Funding	
  
•  A	
  Handy	
  Short-­‐term	
  Funding	
  Tool	
  for	
  
Companies	
  Facing	
  Growth	
  Opportuni<es	
  
•  Provides	
  Capital	
  Needed	
  to	
  Pay	
  Suppliers	
  Up	
  
Front	
  for	
  Bona	
  Fide	
  Product	
  Orders	
  (Before	
  
Product	
  is	
  Sold)	
  
•  Funds	
  Usage	
  is	
  Restricted	
  to	
  the	
  Purchase	
  or	
  
Manufacturing	
  of	
  Products	
  
•  Provider	
  Will	
  Typically	
  Take	
  Title	
  to	
  Goods	
  to	
  
Be	
  Released	
  Upon	
  Sale	
   25	
  
Purchase	
  Order	
  Funding	
  
•  Structures	
  Differ	
  but	
  May	
  Take	
  the	
  Form	
  of	
  
an	
  LeEer	
  of	
  Credit	
  Funded	
  upon	
  Product	
  
Delivery	
  
•  Typically	
  for	
  a	
  Producer,	
  Distributor,	
  
Wholesaler	
  or	
  Reseller	
  of	
  Manufactured	
  
Products	
  
•  Can	
  Be	
  Done	
  by	
  Itself	
  but	
  Ocen	
  Put	
  in	
  Place	
  
in	
  Conjunc<on	
  with	
  a	
  Factor	
  
•  Process	
  Starts	
  with	
  a	
  Customer	
  Order	
  to	
  Be	
  
Filled	
   26	
  
Factoring	
  versus	
  PO	
  Funding	
  
•  Both	
  Are	
  Structured	
  Based	
  on	
  the	
  Underlying	
  
Transac<on	
  	
  
– Factor	
  –	
  Acer	
  Sale	
  of	
  Product	
  &	
  Invoice	
  Created	
  
– PO	
  Funding	
  –	
  Before	
  Sale	
  of	
  Product	
  
•  Both	
  Require	
  the	
  Business	
  to	
  Have	
  Adequate	
  
Margins	
  for	
  the	
  Rela<onship	
  to	
  be	
  Successful	
  
•  PO	
  Funding	
  Must	
  Be	
  Used	
  to	
  Fulfill	
  a	
  
Purchase	
  Order	
  
•  Factoring	
  Proceeds	
  May	
  Fund	
  Any	
  Short-­‐term	
  
Business	
  Need	
  
27	
  
Merchant	
  Advances	
  
•  Lump	
  Sum	
  Advance	
  Based	
  on	
  Monthly	
  Credit	
  
Card	
  Sales	
  
•  Repayment	
  Amount	
  Based	
  on	
  a	
  mul<ple	
  of	
  
Original	
  Advance	
  (~1.2x-­‐1.4x)	
  
•  Advance	
  is	
  Repaid	
  with	
  a	
  Set	
  Percentage	
  of	
  
Future	
  Credit	
  Card	
  Sales	
  (~8-­‐10%	
  of	
  Sales)	
  
•  More	
  Typically	
  Used	
  by	
  Retail	
  Establishments	
  
28	
  
Merchant	
  Advances	
  
•  Structured	
  to	
  Not	
  be	
  a	
  Loan	
  –	
  It	
  is	
  the	
  Sale	
  of	
  
Future	
  Credit	
  Card	
  Related	
  Revenue	
  
•  Repayment	
  a	
  Func<on	
  of	
  Future	
  Sales	
  Volume	
  
•  Expensive	
  Compared	
  to	
  the	
  Cost	
  of	
  a	
  Tradi<onal	
  
Line	
  of	
  Credit	
  (If	
  You	
  Can	
  Get	
  One)	
  
•  Can	
  Provide	
  an	
  Effec<ve	
  Short-­‐term	
  Bridge	
  to	
  
Where	
  the	
  Business	
  Owner	
  Wants	
  to	
  Go	
  
29	
  
Hard	
  Asset	
  Lending	
  
•  Private	
  Investment	
  Groups	
  or	
  Individuals	
  
•  Secured	
  -­‐	
  Land	
  and	
  Commercial	
  Property	
  
•  Bridge	
  Financing	
  to	
  a	
  Long-­‐term	
  Deal	
  
•  Low	
  Loan	
  to	
  Value	
  (~60%-­‐70%)	
  
•  LTV	
  Calculated	
  Based	
  on	
  Liquida<on	
  Value	
  or	
  
Purchase	
  Price	
  
•  Shorter	
  term	
  (<3	
  years)	
  
•  	
  Higher	
  Rate	
  (~12-­‐21%)	
   30	
  
Equipment	
  Leasing	
  
•  Available	
  for	
  Large	
  and	
  Small	
  Ticket	
  Items	
  -­‐	
  
Anything	
  From	
  Computers	
  to	
  Heavy	
  
Equipment	
  	
  
•  Lender	
  Owns	
  the	
  Asset	
  and	
  Leases	
  or	
  Rents	
  It	
  
Back	
  
•  Conserves	
  Liquidity	
  for	
  Other	
  Needs	
  
•  Personal	
  Guarantees	
  Generally	
  Required	
  
•  Sellers	
  of	
  Equipment	
  Ocen	
  the	
  Best	
  Source	
  
31	
  
To	
  Sum	
  it	
  All	
  Up	
  
•  Are	
  You	
  in	
  Need	
  of	
  an	
  Equity	
  Investment	
  or	
  a	
  
Loan?	
  
•  If	
  an	
  Investment,	
  What	
  Percentage	
  
Ownership	
  Do	
  You	
  Want	
  to	
  Give	
  Up	
  &	
  Is	
  Now	
  
the	
  Time	
  to	
  Do	
  It?	
  
•  If	
  a	
  Loan,	
  How	
  Much	
  Can	
  You	
  Afford	
  or	
  
Qualify	
  to	
  Borrow?	
  
32	
  
In	
  Conclusion	
  
	
  If	
  Neither	
  a	
  Loan	
  or	
  Investment	
  Works	
  for	
  
You,	
  Think	
  through	
  Your	
  Other	
  Op<ons	
  and	
  
Keep	
  in	
  Mind	
  That	
  They	
  Can	
  Be	
  a	
  Bridge	
  to	
  
Get	
  You	
  Where	
  You	
  Need	
  to	
  Be…	
  
33	
  
Cash	
  Flow	
  Resources,	
  L.L.C.	
  	
  
Contact	
  Informa<on:	
  
www.cfrscs.com	
  
Kevin	
  Laborde	
  -­‐	
  President	
  
kevinlaborde@cfrscs.com	
  
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Overlooked and Misunderstood Capital Sources

  • 1. Overlooked  &  Misunderstood   Capital  Sources   Kevin  Laborde   President   Cash  Flow  Resources,  L.L.C.    
  • 2. Today’s  Objec;ves   •  Cash  versus  Profits   •  Equity  Investments  versus  Debt  (Loans)   •  Tradi<onal  Sources  of  Capital   •  Non-­‐Tradi<onal  Sources  of  Capital   2  
  • 3. Se<ng  the  Stage   •  First  a  LiEle  Background  &  Context   – Drivers  of  Funding  Needs   – Basic  Financial  SoluAons   – How  They  Differ   – ExpectaAons  of  Stakeholders   •  Capital     – TradiAonal  Sources  v  Non-­‐TradiAonal  Sources   – Non-­‐TradiAonal  Sources  You  Need  to  Know   3  
  • 4. Cash  versus  Profits   •  So  I  sell  my  product  or  service  for  more  than   its  cost:   – I  generate  a  profit   – I  have  liOle  or  no  Cash     •  Where  is  the  cash  from  my  profitable  opera<ons?   – Inventory   – Receivables   – Work-­‐in-­‐Process   – New  Equipment   – Debt  Payments       4  
  • 6. Cash  is  King   •  What  is  a  Good  Customer?   – Capable  and  Willing  to  Pay   •  Credit  Terms  for  Customers   – Are  they  worth  it?   •  Trade  Credit  from  Vendors  &  Suppliers   – Can  you  get  it?   •  The  Balancing  Act   •  Based  on  What  You  Have,  What  Do  You   Need?   6  
  • 7. Equity  vs.  Debt  (Loans)   •  You  Need  Capital  to  Operate   •  Poten<al  Capital  Sources:   – Equity  (Investment  in  Ownership  of  EnAty)   – Debt       •  Think  Both  Ends  of  the  Spectrum   •  Both  Inject  Capital  into  a  Business   •  Both  Have  an  Expecta<on  of  Return   •  You  Must  Understand  Those  Expecta<ons   7  
  • 8. Equity  vs.  Debt  (Loans)   •  One  has  a  Fixed  Return  (Debt)   •  One  has  a  Poten<ally  Infinite  Return  to   Investor  (Equity)   •  One  Leverages  Returns  (Debt)   •  One  Dilutes  Your  Ownership  (Equity)   •  Which  is  Best  for  Your  Business?   8  
  • 9. Equity  Investments   •  What  do  Equity  Investors  seek?   – Percentage  Ownership   – Control?   – Competent  Management   – Growth  Opportuni<es  –  Scalable??   – An  Exit  Strategy   •  The  Sky  is  the  Limit  –  Infinite  Poten<al  !!   9  
  • 10. Tradi;onal  Bank  Financing   •  Who  provides  Credit?  BANKS!   •  Loans  and  Lines  of  Credit   •  What  makes  a  Loan  a  Loan?   – Fixed  Contract  to  Repay   – Primary  and  Secondary  Sources  of  Repayment  ***   – Leverage  Owner  Returns  with  OPM   10  
  • 11. Tradi;onal  Sources  of  Capital  -­‐  Debt   •  Underlying  En<ty  Must  be  UnderwriEen  For   Debt     •  How  the  En<ty  Is  UnderwriEen:   – The  5  Cs  of  Credit:   • Character,  Capacity,  Capital,  Collateral,   CondiAons   – The  4  Ps  of  Credit:   • Purpose,  Payment,  ProtecAon,  People   11  
  • 12. Tradi;onal  Sources  of  Capital  -­‐  Equity   •  Underlying  En<ty  Must  be  UnderwriEen  For   Equity  Contribu<ons  -­‐  Think  “Shark  Tank”   •  For  Investor  to  Provide  Equity:   – Market  Opportunity   • Considers  CompeAAon,  Barriers  to   Entry,  DifferenAaAng  AOributes,   Scalable?   – Core  Competencies  of  Management   • Ability  To  Execute   12  
  • 13. Capital  Availablity   •  If  Credit  Availability  is  Too  Low  or  Unavailable   OR   •  If  Equity  Investor  Requirements  Do  Not  Fit   OR  BOTH     IT  MAY  BE  TIME  TO  LOOK  ELSEWHERE   13  
  • 14. Non-­‐Tradi;onal  Financing   • Non-­‐Tradi<onal  Financing  Provides   Entrepreneurs  with  Tools  to:   –  Validate  Business  Model   –  Grow  Businesses  to  Create  a  Larger  Cri<cal  Mass   –  Provide  Demonstrable  Results  to  Poten<al   Investors  and  Lenders     14  
  • 15. Non-­‐Tradi;onal  Financing   •  Some  of  the  Underwri<ng,  Evalua<on     Methods  and  Requirements  are  the  Same  as   for  Tradi<onal  Sources   •  The  Difference  Comes  in  How  this  Same   Informa<on  is  U<lized   15  
  • 16. Non-­‐Tradi;onal  Financing   •  U<lizes  the  Balance  Sheet  Strength  of   Another  Party  to  Make  Things  Happen   •  Products  Offered  Typically  Do  Not  Require   the  Same  Client  Characteris<cs  of  Tradi<onal   Sources   •  Providers  are  Generally  Seeking  Returns   Higher  than  Tradi<onal  Sources   •  Providers  are  Taking  More  RISK   16  
  • 17. Non-­‐Tradi;onal  Financing   •  Non-­‐Tradi<onal  Programs  Work  Because   Capital  is  Employed  Using  Different   Approaches  to  Control  Risk   •  Transac<on  Specific  Factors  Take  the  Place  of   Tradi<onal  Underwri<ng  Principles:   – Largely  independent  of  the  underlying  enAty   – Specific  to  the  asset/transacAon  being  funded   17  
  • 18. Major  Forms  of  Alterna;ve/   Non-­‐Tradi;onal  Financing   •  Factoring  A/R-­‐  (Think  Visa/MC  versus  Cash   Sales  or  A/R)   •  Purchase  Order  (P.O.)  Funding  -­‐  on     CommiEed  Product  Sales  and  Manufactured   Products   •  Both  of  These  Accelerate  a  Company’s  Cash   Flow  Cycle   18  
  • 19. •  Merchant  Advances  on  Credit  Card  Sales   •  Hard  Asset  Lending  Against  Real   Property   •  Equipment  Leasing   19   Other  Forms  of  Alterna;ve/   Non-­‐Tradi;onal  Financing  
  • 20. Factoring   •  Basically  Means  the  Sale  of  a  Commercial   Invoice   •  Available  to  Companies  Selling  Goods  and   Services  to  Other  Companies    (B  to  B)   •  Purchaser  (Factor)  Buys  Invoices  from  Seller   at  a  Discount  When  Seller  Has  Cash   Requirement   •  Seller’s  Customers  (“Debtors”)  Remit   Payment  Directly  to  Factor   20  
  • 21. Factoring   •  Discoun<ng  Invoices  is  Similar  to  What   Happens  When  Firms  Accept  Credit  Cards  for   Payment   •  Debtor  Dependent  Underwri<ng   •  Self  Liquida<ng  Obliga<on  –  “Not  Debt”   •  Accelerates  the  Cash  Flow  Cycle   21  
  • 23. Factoring  Advance   •  Client  Sells  Product  or  Service  and  Sends   Invoice  to  Customer  (“Debtor”)   •  Client  Submits  Invoice(s)  to  Factor  for   Funding   •  Factor  Verifies  the  Invoice  with  Debtor   •  Once  Verified,  Factor  Advances  Funds  to   Client  Based  on  a  Pre-­‐established  Advance   Rate   23  
  • 24. Factoring  Repayment   •  Debtor  Remits  Payment  to  Factor  to  SeEle   Advance  on  Invoice   •  Once  Advance  is  SeEled  Factor  Remits  Any   Percentage  Held  in  Reserve  to  Client  Less   Fees   •  Cost  of  Factoring  Impacts  Opera<ng   Margin  of  Client   24  
  • 25. Purchase  Order  Funding   •  A  Handy  Short-­‐term  Funding  Tool  for   Companies  Facing  Growth  Opportuni<es   •  Provides  Capital  Needed  to  Pay  Suppliers  Up   Front  for  Bona  Fide  Product  Orders  (Before   Product  is  Sold)   •  Funds  Usage  is  Restricted  to  the  Purchase  or   Manufacturing  of  Products   •  Provider  Will  Typically  Take  Title  to  Goods  to   Be  Released  Upon  Sale   25  
  • 26. Purchase  Order  Funding   •  Structures  Differ  but  May  Take  the  Form  of   an  LeEer  of  Credit  Funded  upon  Product   Delivery   •  Typically  for  a  Producer,  Distributor,   Wholesaler  or  Reseller  of  Manufactured   Products   •  Can  Be  Done  by  Itself  but  Ocen  Put  in  Place   in  Conjunc<on  with  a  Factor   •  Process  Starts  with  a  Customer  Order  to  Be   Filled   26  
  • 27. Factoring  versus  PO  Funding   •  Both  Are  Structured  Based  on  the  Underlying   Transac<on     – Factor  –  Acer  Sale  of  Product  &  Invoice  Created   – PO  Funding  –  Before  Sale  of  Product   •  Both  Require  the  Business  to  Have  Adequate   Margins  for  the  Rela<onship  to  be  Successful   •  PO  Funding  Must  Be  Used  to  Fulfill  a   Purchase  Order   •  Factoring  Proceeds  May  Fund  Any  Short-­‐term   Business  Need   27  
  • 28. Merchant  Advances   •  Lump  Sum  Advance  Based  on  Monthly  Credit   Card  Sales   •  Repayment  Amount  Based  on  a  mul<ple  of   Original  Advance  (~1.2x-­‐1.4x)   •  Advance  is  Repaid  with  a  Set  Percentage  of   Future  Credit  Card  Sales  (~8-­‐10%  of  Sales)   •  More  Typically  Used  by  Retail  Establishments   28  
  • 29. Merchant  Advances   •  Structured  to  Not  be  a  Loan  –  It  is  the  Sale  of   Future  Credit  Card  Related  Revenue   •  Repayment  a  Func<on  of  Future  Sales  Volume   •  Expensive  Compared  to  the  Cost  of  a  Tradi<onal   Line  of  Credit  (If  You  Can  Get  One)   •  Can  Provide  an  Effec<ve  Short-­‐term  Bridge  to   Where  the  Business  Owner  Wants  to  Go   29  
  • 30. Hard  Asset  Lending   •  Private  Investment  Groups  or  Individuals   •  Secured  -­‐  Land  and  Commercial  Property   •  Bridge  Financing  to  a  Long-­‐term  Deal   •  Low  Loan  to  Value  (~60%-­‐70%)   •  LTV  Calculated  Based  on  Liquida<on  Value  or   Purchase  Price   •  Shorter  term  (<3  years)   •   Higher  Rate  (~12-­‐21%)   30  
  • 31. Equipment  Leasing   •  Available  for  Large  and  Small  Ticket  Items  -­‐   Anything  From  Computers  to  Heavy   Equipment     •  Lender  Owns  the  Asset  and  Leases  or  Rents  It   Back   •  Conserves  Liquidity  for  Other  Needs   •  Personal  Guarantees  Generally  Required   •  Sellers  of  Equipment  Ocen  the  Best  Source   31  
  • 32. To  Sum  it  All  Up   •  Are  You  in  Need  of  an  Equity  Investment  or  a   Loan?   •  If  an  Investment,  What  Percentage   Ownership  Do  You  Want  to  Give  Up  &  Is  Now   the  Time  to  Do  It?   •  If  a  Loan,  How  Much  Can  You  Afford  or   Qualify  to  Borrow?   32  
  • 33. In  Conclusion    If  Neither  a  Loan  or  Investment  Works  for   You,  Think  through  Your  Other  Op<ons  and   Keep  in  Mind  That  They  Can  Be  a  Bridge  to   Get  You  Where  You  Need  to  Be…   33   Cash  Flow  Resources,  L.L.C.     Contact  Informa<on:   www.cfrscs.com   Kevin  Laborde  -­‐  President   kevinlaborde@cfrscs.com   504-­‐522-­‐6065