‘One size does not fit all’: How one alternative financing firm went beyond factoring
|National Post 27 Mar 2018 at 06:29|
Nearly six years back, Jonathan Brindley, founder of Toronto-based Liquid Capital Advance Corp., set out to develop a factoring company.
The goal was to create an entity that would provide small- and medium-sized businesses with the financial resources they needed to tide them over before their receivables were paid. “It’s an attractive business because factoring suits so many companies,” said Brindley, a chartered accountant turned entrepreneur, at the time.
In return for a small fee (in the two per cent to four per cent range), Liquid Capital would advance 75 per cent to 85 per cent of the face value of the receivable with the balance retained until the invoice was paid. Once the funds have been repaid they can be redeployed again. Ideally the goal is to recycle the funds every 30 to 90 days.
But Brindley’s business evolved into much more than a recourse factoring shop. It now defines itself as “a full-service working capital and trade finance company,” that also provides “asset-based lending, purchase order financing, inventory financing and equipment leasing.”
Brindley, who recently opened an office in Calgary, puts the firm’s expanded focus down to “growing with our customers. We have to provide multiple financing options for entrepreneurs. One size does not fit all.”
In some cases the numbers are large. Consider Mayhew, a Toronto-based company that’s been around since 1934 and which designs work spaces. In the spring of 2015, things were desperate: lagging revenue and problems with its major supplier led to a restructuring.
And it needed capital. Liquid Capital stepped in and provided a $5.5 million asset-based facility that allowed the company to repay the bank and provide working capital. Over the next two years, Liquid Capital provided bi-monthly fundings and more than $40 million of revolving credit.
“We would not be here today, were it not for Jonathan and the team at Liquid Capital. They were so responsive and it was very easy to see how he was going to restructure the loan,” said Marcia Mayhew, the chief executive. Now Mayhew doesn’t have any bank debt.
In other cases, Brindley’s customers have outgrown the need for factoring — even though half his business is still coming from factoring. But to stay in the factoring business, Brindley has to find new customers each year.
One of his factoring successes was with Dig it Apparel, which appeared on Dragon’s Den a few years back and secured a $50,000 investment from Kevin O’Leary. (That investment has since been acquired.)
But it was short of cash when it received a $400,000 order from Home Depot. So Brindley provided a $300,000 factoring and purchase order credit facility. Nine months later the facility was repaid. Claudia Harvey, chief executive, said the financing “allowed the company to go from a start-up to a going concern,” and to be eligible for a bank credit facility. “It was a great experience,” she said.
Brindley’s business and Liquid Capital has a growth pattern similar to publicly listed 40-year-old Accord Financial, which offers recourse and non-recourse factoring. The latest financial statements from the company show loans to clients have grown substantially faster over the past one and three year periods than factored receivables. At Sept. 30, 2017 the outstandings for both types of credit were about the same.
Tom Henderson, Accord’s chief executive, said “over the last three years, more clients have needed more than we can provide on just receivables. So we have been making more equipment and inventory loans.”
Last year Accord purchased two equipment-leasing companies. “We added these other products in order to come up with the availability our clients needed,” said Henderson.
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