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05-24-2024, 07:21 AM #1
Reputation points: 338265
- Join Date
- Mar 2015
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- Boynton Beach
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- 3,472
Hi Davis3003,
There are a lot of non-bank finance companies that might be able to help a company that is fairly new. The key to finding the right partner for the prospect is understanding their need. Typically commercial cleaning businesses struggle with working capital which is probably the issue here. The largest expense and need for working capital is likely payroll which in most cases is weekly. They likely have contracts with customers and bill for either time and materials or a fee for services monthly. When they invoice the customer the terms are net 30 at best. That being said, the prospect is floating 8 weeks of payroll before they get paid by the customer. Since out of the gate they are billing $75K/Month they are off to a great start and probably have potential to grow. Here are some thoughts on products out there:
-SBA- They are great, but do not revolve to cover the consistent need. SBA loans also don't grow with the customer's needs. If they obtain a small SBA loan, what are they going to do when the funds are exhausted AND they still have to meet payroll needs.
-LOC-Most banks will not consider a LOC due to time in business. Some non-banks may offer a LOC, BUT that product does not revolve to keep pace with the constant working capital need UNLESS the business consistently pays the loan down when they get paid by customers. Paying down the loan usually does NOT happen. It is also a process to get an increase on the LOC as the company grows or the loan gets tapped.
-Factoring-This might be the best tool for their needs. The facility revolves around the invoicing and payments. Most factors will quickly adjust the line limit as the AR grows. This prospect would be too small for us, but you might be able to find the right partner by researching the International Factoring Association's website. Most reputable factors are members. I would research factors that are local to the company AND may be bank owned. There are over 30 bank owned factoring companies in the US and usually are MUCH more cost effective than non-banks. TIB should not be an issue.
-MCA The company's gross margins are likely less than 25%. That being said, can they really afford the MCA cost. Also, MCA is truly not revolving which may stifle the growth of the company.
Just some thoughts....Kevin Henry
VP-Business Development
Seacoast Business Funding, a division of Seacoast Bank
561-850-9346
Kevin.Henry@SeacoastBF.com
1880 N Congress Ave., Suite 404
Boynton Beach, FL 33426
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