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11-06-2018, 07:07 PM #1
- Join Date
- Aug 2017
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- 404
Need advice on factoring deal
Need some advice on factoring.
Have a deal right now with a factor that is getting ready to close.
Here are the terms some of the terms
80% advance rate
1M in volume for one year
500K Facility limit.
3.75% Factor fee for 0-60 days
4.75 % 61-75
He has about 900K in AR and he owes around 300K in MCA's.The factor is going to pay off the MCA's.
He wants to factor all of his AR.
My question is, how does the funding work? Will they fund him a large sum upfront or will it be in batches based on his invoices. The rep I am working with is not really explaining things clearly.
I've heard of brokers that charge fees outside as well.Is ok to charge fees outside of what the factor is paying? If so how much on a transaction this size? They are paying 10% of the fees residually.
Also Assuming he does 1M worth of business in a year and they charge 3.75 and his debtors pay on time... 1M x 3.75=$37,500? Is that the cost of funds?(excluding any fees) does that mean commission would be 10% of the $37,500=$3,750 divide by 12=312.50 a month?
Hoping to get some good feedback here.
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11-06-2018, 10:04 PM #2
- Join Date
- Mar 2017
- Posts
- 37
Give me a call in the morning I would love to discuss this with you,
Kevin Sampson
Capital Solutions Bancorp
http://capitalsolutionsbancorp.com
ksampson@capitalsolutionsbancorp.com
706-745-8435 Office
561-436-5883 Cell
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11-07-2018, 08:45 AM #3
- Join Date
- Mar 2015
- Location
- Boynton Beach
- Posts
- 3,471
Hi Bob,
You need to determine a few things before figuring out the commissions and if this is a good deal for your client.
-How do customers pay? If they are paying in less than 60 days then they are being charged for days they don't need.
-What is the cost of funds for the factor. If the cost of funds are high, you make less. Assuming their cost of funds is somewhere around 6% the commissions for the deal would be somewhere around $3795 for the year. A lesser cost of funds drives the commissions higher.
-Are they charging a line fee and do you participate in the line fee?
Just because someone charges a higher rate does not mean the referral partner makes more.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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11-07-2018, 11:52 AM #4
- Join Date
- Dec 2015
- Location
- Texas
- Posts
- 552
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11-07-2018, 12:01 PM #5
- Join Date
- Feb 2017
- Posts
- 3,395
There are two structures that factors generally offer. (There are very few exceptions....)
1) 10% of the gross sales
2) 15% of the net (gross rate charged minus cost of capital)
Seacoast offers 15% of the net, and his cost to capital is low since it's coming from a bank's own deposits.
What you are being offers is 10% of the gross sales.
Different lenders will offer different levels of liquidity for clients, meaning they might give a max amount they can factor one year even if it's a better rate for the client, so it's worth knowing your lenders.
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11-07-2018, 12:28 PM #6
- Join Date
- Jan 2014
- Posts
- 1,366
on the commission side to you its peanuts. you have to hope merchant stays factoring to make money if not you make few hundred bucks a month only and if its to you directly it helps but if its to your company and you get a percentage of that its even smaller. Issue im having trying to get our reps to utilize this program when speaking to merchants. For merchant it could be best option but for reps to actually make money its not the easiest thing. Reach out to either Kevin who responded to you i've worked with both and both are stand up guys that know their stuff.
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11-07-2018, 01:48 PM #7
- Join Date
- Mar 2017
- Posts
- 37
Kevin Sampson
Capital Solutions Bancorp
http://capitalsolutionsbancorp.com
ksampson@capitalsolutionsbancorp.com
706-745-8435 Office
561-436-5883 Cell
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11-07-2018, 03:21 PM #8
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- Jan 2014
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- 1,366
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11-07-2018, 03:35 PM #9
- Join Date
- Aug 2017
- Posts
- 404
Hi Kevin, thanks for the response.
His customers pay anywhere between 45-60 days sometime they are late.I had the guy get credit insurance on the accounts receivable because the factor wouldn't approve the single account for more than 100K.
How do I figure out the cost of funds? Do they tell me that?
What is a line fee?
Thanks for the feedback, this is what makes this forum great!
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11-07-2018, 03:38 PM #10
- Join Date
- Aug 2017
- Posts
- 404
Sachip,
My question to you is:
How would a typical deal like this close?
Assuming everything checks out and they advance up to 500K and pay off the 300K in MCA's. - the setup fees and application fees are less than 6k according to the proposal. Will the client receive the 200K remaining in one shot,or do they fund invoice by invoice into different increments?Last edited by Mynameisbob; 11-07-2018 at 03:45 PM.
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