Asset Based Loans  The Difference Between Interest Rate and Opportunity Cost

Asset Based Loans The Difference Between Interest Rate and Opportunity Cost

Huntington Beach CA 

What is the interest rate? How much does it cost? What fees are involved? These are some popular questions our clients ask when considering borrowing money to grow their business. These questions are typical when looking to see how much something is going to cost over the long run. However, these questions are more applicable to purchases related to a home mortgage, a car loan, applying for a credit card or other more commodity based financial products.

When considering Opportunity Cost the analysis is much different. For example, if I told you the cost of capital for fulfilling multiple $100,000 orders is 20%, you may say “that’s too expensive!” However, when you take a closer look at it, the true funding costs may be only 6% to 7% per order less early payment discounts. The borrower makes substantially more money than the cost of financing if the margins can support the cost.

Here is an example of a typical analysis we take our clients through. It’s a simple way to determine if financing is right for your business.

  • A purchase order is received from a customer and the cost of goods is $100,000 (your cost or wholesale cost)
  • Your gross margin on this sale is 60% (your sales price to the customer is $160,000)
  • Your financing cost is 6.5% of your wholesale cost for 120 day funding or $6,500 ($100,000 multiplied by 6.5%)
  • The gross profit calculated after financing cost is $53,500 on this order ($60,000 profit minus $6,500 in finance cost)

The question becomes, “would you spend $6,500 to earn $53,500?” Most all of us would agree that is a worthwhile opportunity. There are some variables that can effect these numbers both positively and negatively. For example, if your company has high fixed costs, this will chew in to the profits. On the contrary, if you are able to negotiate a discount for early payment to suppliers (i.e. a 2% discount for payment in 10 days, expressed as 2%/10 net 30) it will have a positive effect on profits.

Keep in mind that this is one sale and each additional sale will have a better net earnings ratio. This is because fixed costs typically stay the same and more profit gets kicked to the bottom line as more sales are realized. An example of where this analysis doesn’t make sense is if a company has out of control fixed expenses or super slim margins as seen in the electromics industry. In our experience, this analysis pencils out for most of our clients.

We always encourage our clients to look at how much they stand to make versus solely focusing on cost. The lender also needs to earn a return and if expectations are managed, business owners can grow their companies and earn more as a result.

About Huntington Coast Capital. 

Huntington Coast Capital secures funding for companies in a broad base of industries. Our clients come to us to find a more flexible lending partner to meet their growth needs. Many are declined by the bank and are in need of a more creative and entrepreneurial funding solution.

We consult on a wide range of funding options for business owners throughout the United States in the following areas:

  • Supply chain financing 
  • Equipment loans and lease programs (learn more about our equipment loan platform offered through our subsidiary)
  • Lines of credit for working capital needs
  • Term loans for marketing, hiring staff and general expansion needs
  • Factoring services for accounts receivable financing that also provides for back office credit and collection functions
  • Purchase order financing
  • Asset based loans
  • Business acquisition financing
  • Inventory financing
  • Private commercial real estate bridge loans
  • SBA loans for business and real estate needs

Whether you are a startup or established, in need of $100,000 or $10,000,000 we have the capital partners to meet your needs. Contact us to see how we can assist in taking your business to the next level. To your success!

Asset Based Loan Funding Announcements

Asset Based Loan Funding Announcements

Huntington Beach, CA Huntington Coast Capital is proud to announce that we secured $525,070 in new asset based term loans for our clients through the first two weeks of February! The loan details are as follows:

  • A $350,000 asset based loan for a distributor of cell phone and tablet accessories. The company once had sales of over $20,000,000 a year and had a $1,000,000 line of credit with Bank of America. However, margins in the electronic accessories industry are becoming increasingly thin with all the big players entering the market. In 2017 the company made the conscious decision to exit the high volume, low margin business and pursue the smaller volume, but higher margin business. As a result, their profits were not greatly effected, but their gross sales went down and thus their need for a $1,000,000 line of credit. Surprisingly, Bank of America asked them to find a new lender as they do not provide lines of credit of that size to their clients. They are interested in the larger borrowers. The pressure to find an asset based loan was mounting as the requirement was to pay off the entire $350,000 as quickly as possible. Huntington Coast Capital was able to find them an asset based loan to get them out of their predicament! With an asset based term loan now in place, the company can re-focus on operations with Bank of America off their backs
  • A $175,000 asset based loan for a restaurant owner. An established restaurant owner was looking for a loan to open a new concept in a second location. Due to the company ownership structure that included investor unwilling to guarantee the loan, a little creativity was required to secure the financing they were looking for to expand. HCC was successful is obtaining an asset based loan for the company after numerous lenders on both the private and institutional side. There was no interest from a number of SBA lenders and the loan was ultimately completed by a non-SBA lender offering a 10-year asset based term loan. The term of the loan kept the payments down and allowed the company enough cash flow to carry the new project.
  • A $70,000 asset based loan to a physicians consultant company. A consultancy group came to us looking to refinance some high priced MCA loans or merchant cash advance lenders. These loans are expensive to say the least and they often require direct daily debits from the bank account of the client. With high interest sucking the cash flow out of the company, they needed answers quickly. HCC secured an asset based loan to refinance these high priced lenders and also provided for a portion of cash out to be used as working capital for some new contracts coming down the pipeline.

If your company could benefit from an asset based loan or if you are in need of an asset based loan for a commercial real estate purchase or refinance, we would like to speak with you.

A Major Obstacle To Obtaining An Asset Based Loan

A Major Obstacle To Obtaining An Asset Based Loan

Huntington Beach, CA  Asset based loans are loans secured by equipment, real estate, inventory or accounts receivable. Essentially, most assets on a company balance sheet can be used as collateral for an asset based loan.

Let us discuss asset based loans secured against equipment and asset based loans secured against commercial real estate. Asset based loans secured against inventory and accounts receivable work entirely different from fixed asset loans.

For starters, lenders in the asset based lending space need to have conservative loan to value ratios. Asset based loans on real estate have loan to values in the 50 to 65 percent range. This is because the lender needs to be able to sell the property and recoup his principle (and hopefully interest) should the borrower default and go in to foreclosure.

Similarly, the loan amount for an asset based loan on equipment is measured by the forced liquidation value. This is not true in most cases, but if we are talking about strictly and asset based loan, it is. The idea behind lending on a percent of the equipment liquidation value is that the lender can sell the equipment at auction should the borrower default.

So, if you own assets free and clear, you should be able to get a loan for 50 to 65% of the assets value, correct? Not necessarily. One item borrowers over look when seeking an asset based loan for the their business is cash flow. They think that if they have the asset, that is all the lender needs. This is incorrect. In addition to having the assets available for collateral, you also have to demonstrate the ability to make the monthly payments. This sounds obvious, but many borrowers initially believe that the asset itself is enough.

Asset based lenders need to be convinced that their loan can be repaid. This was never more apparent than during the real estate meltdown of 2007-2008. Asset based loans against real estate were being made on what was referred to as stated income loans. Or in other words, you tell me how much money you make, I will believe you and then depend on the property value to be high enough to cover my loan should you go in default. This was a very short sided and poor lending practice.

If you can qualify for a million dollar loan to buy a house, it does not mean you can qualify for a five million dollar loan just because the loan to value is there for the asset based loan. Simply put, you still need to make your monthly payments. Sounds simplistic, but borrowers frequently think that having the asset is enough. Well, it is not unfortunately.

Could your company benefit from an asset based loan? Do you have the cash flow to afford to take on the loan payments? Let us talk and see what works.

To your success!

Patrick Zazueta
Huntington Coast Capital, Inc.
714.719.8966

HCC Secures Asset Based Loan For Importer Of Baby Bedding And Gifts

HCC Secures Asset Based Loan For Importer Of Baby Bedding And Gifts

Huntington Beach, CA: Huntington Coast Capital secured a $1,250,000 asset based line of credit against accounts receivable for a company in the baby bedding and gift industry. The company was able to secure an asset based line with additional financing in the form of purchase order funding, another form of asset based loan program.

Their current lender was more conservative than the funding we secured for them. HCC was able to provide them with an asset based solution that delivered more capital availability to grow their business. Their asset based loan availability grew from $750,000 to $1,250,000 allowing them to fill more orders from their major customers!

Could your business benefit from an asset based loan? Huntington Coast Capital secures asset based loans in California and across the nation. Give us a call to see how we can assist your business.

To your success!
Patrick Zazueta
Huntington Coast Capital, Inc.
714-719-8966

Asset Based Loans Versus Bank Loans. Which Is Better For My Business?

Asset Based Loans Versus Bank Loans. Which Is Better For My Business?

Huntington Beach, CA: Our clients come to us with an asset based loan or financing need that almost always is required in order to grow their business. If you are like most business owners, cash flow is tight and if you receive a big order outside the normal course of business, it could be challenging coming up with the cash to cover the cost of goods and deliver the product. Your cash need could also be to finance additional equipment and require an asset based equipment loan in order to meet the increased capacity required to fulfill a contract.

Traditional banking places the emphasis on the cash flow and financial strength of the company, the borrower. They are primarily concerned with how financially solid the company they are lending to is. This is good practice, and it makes sense that the companies that the banks deal with are in good financial health. The obstacle to clear however, is that most companies are leveraged to a high degree and can not meet all of the required ratios banks look for when making a credit decision.

If your company is growing quickly and every dollar is going back out the door to cover ongoing working capital needs, it is likely that you will not meet all the requirements of bank lending. For example, banks look at the leverage ratio of the company. This ratio is figured by dividing the total debt of the company by the equity of the company. Equity being the total assets minus the total liabilities. If you have more than 3 or 4 times the liabilities as you do equity, banks will shy away from offering you more credit for fear that your profits and company cash flow will not be able to pay off the new debt. Again, a prudent way to look at things, but the problem is that most borrowers do not qualify.

The advantage to bank lending is the cost. If your company can qualify, then banks will be able to offer the lowest borrowing rates.

The other option are asset based loans. Asset based loans have a broad spectrum of categories. An asset based loan can be used for commercial real estate purchases, inventory loans, equipment loans and purchase order financing to name a few. In an asset based loan, the lender is looking at the asset being used as collateral in the transaction. For example, if your company received a large purchase order and needs additional cash to pay the upfront costs or deposit required by the supplier, and asset based loan is a good option. The asset in this instance is the purchase order itself. Purchase order financing is often accompanied by a factoring loan. Factoring loans are asset based loans secured by the invoice sent to the customer versus the purchase order sent to the supplier. For more information on factoring loans click here.

In our experience, business owners are qualified for asset based loans more often than bank loans. We explore each option as appropriate and the obvious choice is always revealed in the end. Our clients like the unbiased consultation and industry insight we bring to the table. Because we are not lending our own money and acting in a consultant capacity, we are able to align ourselves on your side of the table and deliver the best options for you and your funding needs. Additionally, in the majority of cases, our services are free to our clients. Our lender network compensates us for bringing them asset based loan opportunities.

If your business would benefit from an asset based loan or equipment loan, give us a call. My direct line is 714-719-8966.

To your success!

Huntington Coast Capital Arranges A $150,000 Unsecured Loan

Huntington Coast Capital Arranges A $150,000 Unsecured Loan

Huntington Beach, CA  Huntington Coast Capital arranged an unsecured business loan for a company offering online teaching credentials. The company is the first online alternative certification program in South Texas to be approved by the State Board of Educator Certification (TEA) , and certifies candidates across Texas in over 25+ certification areas offered in the state of Texas including Career &Technology and Trade Vocations.

The curriculum allows candidates to review courses as many times as they need to, gives benchmark quizzes at specific intervals to ensure students are comprehending what they are studying, and provides the user with immediate feedback to track their progress.  In addition, they have partnered up with companies dedicated to test preparation and have incorporated their material and curriculum to provide their candidates with more opportunities for success.

The unsecured asset based loan was supported and approved due to the positive cash flow of the company. Traditional business loans are more geared to B2B companies with inventory and accounts receivable. Finding a loan proved difficult for the company and they urgently wanted to refinance some higher priced debt.

Through our broad base of lenders, we were able to provide them with a solution. Huntington Coast Capital prides itself on providing business loans to companies who otherwise would not know they are available. Could your business benefit from additional capital? If so, we would like to talk to you.

To your success!
Patrick

Huntington Coast Capital Secures $400,000 Equipment Loan For Southern California Manufacturer

Huntington Coast Capital Secures $400,000 Equipment Loan For Southern California Manufacturer

Huntington Beach, CA  A $400,000 asset based loan secured by equipment was obtained for a long time Huntington Coast Capital client. The company came back to Huntington Coast Capital for some additional equipment loan needs for their expanding business. The assembly line equipment will enable them to meet growing customer orders. The asset based loan secured exclusively by the equipment offered better terms than other equipment finance companies and even the equipment supplier’s terms!

The production manager said, the new equipment will allow us to deliver the additional orders being requested by our customer and enable us to deepen our relationship with them.

Asset based loans are a great way to leverage specific collateral for a loan. Equipment loans and factoring loans are great examples of this. In factoring loans, the asset being pledged is the accounts receivable of the company. Business owners in need of cash flow to sustain operations often turn to a factoring loan for the flexibility, speed and fewer restrictions involved in the loan agreements. When compared to traditional bank financing, asset based loans offer a more user-friendly experience and allow you to grow your business without the bank hassle.

Could your business benefit from an asset based loan? Are you looking for a less complicated lender experience? Through our network of lenders throughout the United States, we have most every business loan request covered. To learn more, give us a call 714-719-8966.

To your success!
Patrick

Huntington Coast Capital Presents At The Cove At UC Irvine Applied Innovation

Huntington Coast Capital Presents At The Cove At UC Irvine Applied Innovation

Huntington Beach, CA  Entrepreneurs from around the southwestern United States came to The Cove Applied Innovation Center at UC Irvine to pitch their business plans in an effort to raise capital from venture capitalists and equity investors. The companies in attendance ranged from pre-revenue, startup concepts to established companies looking to take their business to the next level. A broad range of industries were represented some of which were video game developers, niche apparel companies, foam mattress engineers, craft tea brewers, education service platforms, and airline sanitation concept companies. There were also medical technology companies represented in the area of liver function testing and patient records management.

The energy in the room was high with business owners given either 1-minute or 5-minutes to present their business and plans for the future and the opportunities that existed. The time frames were offered at different ticket price levels. The pressure was on from the beginning as the moderator kicked of the program by stating bluntly, if you can not explain your business and justification for investment in the first minute, the investors will not listen to what you have to say in the second minute! 

After the entrepreneurs were placed in the hot seat to present with hundreds of eyes fixated on them, the panelists were given the opportunity to ask questions about the business to dig deeper to see if an investment opportunity existed. Feedback was direct and pointed as the venture fund and equity groups inquired about the financial details and assessed the likelihood of earning a return on an investment. Investor comments were direct, cold and objective as they assessed the quality of the opportunities being presented.

Huntington Coast Capital was at the program to discuss the other side of business lending, asset based loans. Successfully securing an equity investment for your company is a gratifying feeling. It is an acknowledgement from discerning and critical investors that your business plans have merit and potential. Sometimes, this endorsement and confidence can be supported with investments of over a million dollars!

The harsh reality is however, that very few companies earn the privilege of an equity investment. These equity groups are reviewing upwards of three business investment opportunities per day. I often equate companies looking for an equity investment as sea turtles. Millions are born and sadly only a few hundred make it to open water!

This success ratio can be discouraging. However, when companies can not qualify for an equity investment, capital may be available on the debt side. If you are looking for money to hire staff, complete research and development of a product, market your company or gain inroads to supplier and customer contacts, equity is a great option. Conversely, if you are looking for funds to cover purchase orders or improve your working capital cycle, an asset based loan is a better option. You should not give up equity in your company if all you are looking to do is cover your cost of goods, purchase equipment or increase your inventory to meet demand. These capital expense items are all met with asset based loans.

Huntington Coast Capital specializes in securing asset based loans for companies of all sizes throughout the United States. Our typical funding amount is anywhere from $250,000 to $1,500,000. If you have solicited an equity investment with no success, look in to an asset based loan. We would welcome the opportunity to speak with you about your business goals. Call me directly at 714-719-8966.

To your success!

Patrick Zazueta | Founder
Huntington Coast Capital, Inc.

HCC Secures $500,000 Asset Based Loan For A Women’s Apparel Company

HCC Secures $500,000 Asset Based Loan For A Women’s Apparel Company

Huntington Beach, CA A women’s apparel company that started in 2008 was experiencing rapid growth due to increased brand awareness and marketing. The company is in a niche market within the women’s apparel industry. When the company first started in 2008, they were purely an eCommerce company. The company found that they could compete in a niche market and grow much more rapidly if they were not competing in the main stream women’s categories. Because they were largely an eCommerce, direct to consumer company, traditional asset based loans were not available to them. Traditional asset based lending companies loan against accounts receivable and inventory. These two assets on a balance sheet accompany sales to retailers, wholesalers and distributors, not sales directly to the consumer.

The company was profitable, but not to a level that banks like to see. After speaking with a number of banks with no positive results, they decided to engage Huntington Coast Capital. While asset based loans to eCommerce focused companies are not easy to come by, Huntington Coast Capital has a reliable stable of such lenders eager to be involved in the space.

The short story is, we were able to secure them an asset based loan and close in less than 3 weeks from our initial consultation. Huntington Coast Capital secured a $500,000 asset based loan against the general assets of the company. We succeeded where others failed. This asset based loan will allow the company to hit their sales numbers by giving them the capital they need to fulfill the ever-increasing orders.

Could your business use an asset based loan? Give us a call 714-719-8966.

To your success!

Patrick Zazueta | Founder
Huntington Coast Capital, Inc.

HCC Secures $350,000 Asset Based Loan For Social Media Advertising Company

HCC Secures $350,000 Asset Based Loan For Social Media Advertising Company

Huntington Beach, CA: A southern California company providing retailers with a way to socially market their products was growing fast. Huntington Coast Capital secured them an asset based loan on the general assets of the business to take them to the next level.

The company essentially captures happy customers in an onsite Kiosk that takes pictures of them and their friends and shares the message and photos on their social media outlets. A modern way to advertise your business! The products as described on the company’s website are copied here:

We turn event photos into marketing stories

We believe that the best way to spread your brand’s story is to capture a personal photo of your customers. Capturing photos and videos of your customers is the most powerful way to create testimonials and word-of-mouth marketing.

As we continue to evolve our technology, we have a few guiding principles:

  • All of our technology is designed for marketing, and the best type of marketing happens when the consumer’s photo tells a story.
  • Photos should be delivered as a gift. For example, Photo Access Cards turn a photo into a physical gift that people put into their pocket and use to retrieve the photo later. No need to ask the consumer for information onsite
  • Different situations require different methods of delivery. We support delivering photos by: email, SMS, handing out Photo Access Cards, handing out a glossy print, through social channels, and with an onsite sharing kiosk
  • Event technology has to be drop-dead-simple to use and bullet-proof. All of our technology can be used in a single location or rolled out to hundreds of locations
  • We have created a system that fits the needs of the most demanding large brands, and can be used by small businesses

Could your business use an asset based loan? We secure asset based loans in California and throughout the country! Call us today 714-719-8966.