Working Capital. Every Business Needs It!

Working Capital. Every Business Needs It!

How long would your business last without enough money to cover expenses? Most businesses fail within the first three years due to lack of enough working capital, and even well established operations can experience cash crunches. Competitors are a constant. How financially strong your business is, will determine how well you can compete.

The frustration for many business owners is this – traditional lending sources either require you to be financially solid before they lend you money to grow or are conservative in the amount of credit they extend to the seasoned business operator.

So where do most business owners obtain the financing they need to grow their business? In short, asset based lenders. There is a 2nd tier of lenders below bank financing that finance purchase orders, equipment needs, inventory, real estate and accounts receivable. Essentially any asset listed on a given company’s balance sheet can be eligible for financing. Their focus is either on the quality of the asset they are financing or the financial strength of the customer placing the order (in the case of purchase order and accounts receivable financing). This approach makes financing growth much more obtainable for business owners.

What about financing for the established companies? A challenge remains here as well. Financing available for the established business owners is often inadequate to meet growth needs. Banks are most typically conservative and provide small lines of credit, even to companies with strong net worth and income. Companies need creative solutions when seeking additional capital and this creativity comes from the non-regulated, more entreprenuerial thinking, capital sources in the market. Could your business benefit from knowing a partner like this?

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 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!

Supply Chain Funding Versus Purchase Order Financing

Supply Chain Funding Versus Purchase Order Financing

Huntington Beach, CA

Supply Chain Funding has been steadily growing in popularity with our clients. Supply Chain Finance programs provide the business owner with capital to cover the cost of goods and make supplier payments.

How does it work?

Finance companies offering this form of financing will look at the business owner’s equity in the business, profitability and growth projections to name a few areas of focus. The credit analysis is slightly different depending on the Supply Chain company you are speaking with. Some set the line amount at a percent of the equity in the business (i.e. 25% of the equity in the beginning raising to 50% over time), and others will base their credit limit decisions on the amount of insurance they can take out on the business, while some have a more subjective approach based on their review of the overall financial picture of the company.

How is Supply Chain Finance different than Purchase Order Financing?

When utilizing Purchase Order Financing, the business owner needs to provide a copy of the purchase order to the lender. The PO copy is the basis for the loan amount being requested and the lender’s collateral. PO finance companies are repaid at the time of delivery to the customer by the company’s factor or asset based loan provider (unless they are managing the total relationship). Purchase order financing is a good source of capital when looking to cover the cost of a specific order of finished goods.

Supply Chain Finance works a little differently. Under this arrangement, the lender will pay the company’s suppliers and then give the company 30 to 120 days to pay them back through the normal course of business. This type of finance does not need to be specific to any one purchase order for the company. The lender becomes another vendor for the company on their account payable aging. This is a great alternative when the company needs to build inventory for their season or is an online or brick and mortar retailer selling directly to the consumer (no accounts receivable).

Which one is right for your business?

It depends on whether you have specific purchase orders to finance or if you need more of a general line of credit to pay suppliers. Both are great ways to enhance liquidity and each offer the business owner the ability to act with the confidence of a cash buyer. In fact, a good portion of the finance cost can be offset by taking discounts from suppliers for early payment. Utilizing these options are a great way to leverage your buying power and your company’s growth.

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!