June 28, 2023

Accelerate Growth and Secure Capital: A Quick Guide to Bank Financing

Are you a sophisticated factoring company aiming to secure a bank line of credit for your growth aspirations? At Haversine Funding, our team of experts is here to provide financing while we also help guide you through the process so you are fully prepared. Discover valuable insights and expert tips to position yourself for the financial support needed to propel your growth. Explore more now!

Expert Tips for Factoring Companies

Launching, growing, or seeking a bank financing partner for your factoring platform? Securing the right financial support is crucial to fuel your growth. We understand the importance of this journey. At Haversine, we are dedicated to assisting you every step of the way, offering lines of credit and expert guidance to help you prepare for that next stage of success in your business. Our flexible funding solutions are designed to support you not only until you're ready for a bank line of credit but also throughout various stages of growth, with options like subordinated debt or even acquisition financing. Let us navigate this path together and help you achieve faster access to bank financing.

To help you prepare for obtaining a bank line of credit and ensure your success, here are some valuable tips:

1. Establish a Comprehensive Policy Manual:

Create a robust policy manual that outlines internal controls and standardized processes. This ensures consistency, compliance, and transparency in your operations. Include policies on underwriting, credit management, risk assessment, and internal controls. Regularly update the manual to align with industry best practices and regulatory requirements.

2. Ensure Strong Financial Reporting with a Historical Track Record:

Banks seek assurance of your financial stability and performance. Implement a sound financial reporting system that generates monthly reports showcasing portfolio metrics, operational performance, and financial health. This historical track record demonstrates your ability to manage risk effectively and instills confidence in your operations.  Typically, once your portfolio is between $5 and $10 million in outstandings, you will want to start getting accrual-based reviewed, and then later audited financial statements. Having already put internally generated metrics in place will make this an easier transition. Also, as an added bonus, having these historical metrics readily available shows monthly trends over time (accounting, operational and portfolio metrics will help create value upon an exit in the future).

Also, as noted above, it's important to include not only financial metrics, but operational and portfolio key performance indicators, which make a difference when lenders or investors want to see how you’ve performed over time (particularly during economic downturns). Remember to break down the key metrics you want to review, as too much can be overwhelming, time consuming and not necessarily helpful. By focusing on what the more meaningful data, you can highlight and share trends more effectively, while incentivizing behaviors you want to see, which can be critical to helping you better manage your factoring business.

3. Build Checks and Balances:

Establish robust checks and balances within your processes to instill trust and mitigate risk. Implement multiple layers of verification for transactions, credit approvals, and disbursements. Strong internal controls enhance transparency, reduce fraud risk, and boost your credibility with banks. In many cases, the field exam is not only looking for portfolio performance but also reviewing your processes and controls and how well you follow through on those. As an added benefit, having these will make it easier when working through your financial audit or collateral field exam with a future lender.

When going through this process, there are a few things to consider: do you monitor your UCC filings, debtor credit limits, legal contracts and limits, or other items? Have you built in pricing increases, and how are those implemented to ensure margins remain steady? If not, these are processes that are important to talk through, implement and effectively administer within your organization. If you haven’t started, prioritize those items and work to develop a plan to properly communicate and execute those changes throughout the company.

4. Develop and Maintain a Tenured Team:

Invest in building a skilled and experienced team. Provide ongoing training and foster a culture of continuous improvement. A tenured team demonstrates stability and expertise, assuring banks of the consistency and quality of your services. Creating a supportive culture where employees can learn and grow, ask questions, create solutions and work collaboratively will help retain and attract team members. Moreover, your team is a strong indicator of your firm as an organization, which is a selling point for lenders as well as future investors, buyers and your clients. If your team isn’t happy, your clients won’t be either.

5. Diversify:

While preparing for a bank line of credit, consider diversifying your funding sources. Collaborate with alternative lenders or seek partnerships with institutional investors who can support your growth. Diversification showcases your ability to attract multiple options, making you more attractive to banks and future investors. At Haversine, we offer various funding solutions tailored to different stages of your growth.

Similarly, when considering your portfolio, look for diversification there as well. This is a challenge when you first start but keep this in mind for the future with client, debtor, and industry concentrations. Many bank lines may have limits on how much can be extended on a single client or account debtor or other areas such as construction, energy, or other niche verticals or collateral types.

6. Strengthen Relationships with Banks:

Establish and nurture relationships with banks experienced in the Regularly communicate with bank representatives, attend industry events, and seek their guidance on financial best practices. Building strong rapport with banks demonstrates your commitment to responsible financial management and prepares you for the future. Additionally, knowing which banks prefer certain industries and understanding their lending philosophy and credit requirements will all be beneficial when you start looking for a bank line of credit.

7. Develop Professional Advisor Relationships:

Engage with professional advisors with expertise in the factoring industry, such as accountants, attorneys, or financial consultants. These experts play a vital role in structuring your contracts, preventing losses, and optimizing financial reporting for effective business management. Their guidance ensures you are well-prepared for future bank or lender application processes.

Remember, each bank has its own specific requirements and evaluation criteria. It's crucial to reach out to potential lenders early on to understand their expectations and tailor your preparations accordingly. Until then, Haversine can be a valuable resource to support your growth journey through senior lines of credit or participation funding. We can also help introduce you to potential bank partnerships, where we can assist further by providing subordinated debt through a junior lender finance line of credit.  

Partner with Haversine today and benefit from our experience in factoring and financing solutions. Together, we can help efficiently navigate your path to success.

We are here to help you succeed and grow your business.