Graduation Day

When you are a small fledgling business, finding financing seems to take up so much of your time.  Most owners start by emptying their savings, begging friends and family, and perfecting their sales pitch to strangers for capital.  Then, one day, you qualify for more predictable financing, and you work on different problems.  For our factoring clients, a big goal we (and they) have is to be able to graduate to a less regulated, more flexible form of funding.  Through our ABL Flex lines of credit, we are able to offer a stepping stone from traditional factoring to bank financing. 


A common question we are answering today is: What does it take to qualify?

Good Reporting.  There are other potential qualifiers that we will cover below but this is the most important. A lender needs to trust that the business leaders:

  • have organized and accurate financial reporting
  • will provide it in a timely manner
  • it represents a true picture of the business

This may mean an outside service helps with compiled or reviewed financials.  This isn't always the case though, and demonstrating sound business knowledge with complete financials is often adequate.

Size of Need and Collateral. Generally speaking, most ABL clients have a working capital need of at least $500k.  To back up this need, they must have strong collateral that is unencumbered with other debt, or there must be a plan in place to subordinate any other debt.  Typically, clients with a small cash need are better served through traditional factoring. One outlier would be a client with many invoices-  in some cases an ABL line makes the account easier to manage.

Financial Stability. Obviously all businesses long for high levels of profitability, and a profitable company is easier to finance. However the biggest factor is actually stability. Lenders look for consistency and track records as a way to calculate what their credit risk will be going forward.  Even businesses with slim profit margins can be trustworthy clients if they show good control and avoid wild financial swings.  

Other Factors: A few other qualifiers for an ABL flex line of credit could include:

  • Absence of tax liens
  • Record of customers typically paying within 90 days
  • Variety of customers, not too concentrated with one customer

These factors are not present in all relationships, but they are good indicators that the business is running smoothly and may be ready to take the next step.  

Overall, businesses should always be looking at their financing options - never be afraid to ask if you may qualify! We see creative solutions work for companies every day and finding the best fit is what is important.  As the business grows, changes are needed and 12five is available to find the best financing option for the business at the time.

Liz WhittenComment