Year-End Report Card for Commercial Finance

Feb. 16, 2013 - PRLog -- It appears that the commercial finance industry has enjoyed a decent level of activity in 2012 with respect to deals and transactions. However, the luster was somewhat tarnished with the severe pressures of historically low interest rates. The ability to earn a profit on a financing has had to be carefully scrutinized.

Credit for deal flow in commercial finance in some respects goes to the banks! They continue to be burdened by steep, excruciating regulations by government monitors. Banks have continued their retreat in the small business sector, even though many enterprises which would be candidates for financing only pose a fair level of risk. More business owners in this category appear to be discovering commercial finance as a serious option. Some of the noteworthy sectors are:

APPAREL AND FOOTWEAR:  Both areas have been suffering and depressed for a variety of economic reasons. There are always emerging designers who think they can succeed who will consider commercial finance. The major brand labels have so much power in the stores that it becomes exceedingly difficult for the upstarts to fight with them. Overall, retailers are under so much financial pressure they cannot be blamed for demanding all types of stipulations and requirements to their advantage, from design houses which want to get placed in their stores. Retailers have been aggressively creating their own brands where they engage in direct buying, thus cutting out the middle supply chain business owners whether they are suppliers, importers, distributors, vendors, jobbers, and the like. For the retailers, it is now a one-way proposition. Deals which are available in this space have become frustrating.

JEWELRY:  Regular high value jewelry activity and the opportunity for financings among businesses in this space had been unimpressive during 2012. In what has been an uncertain economy, high net worth consumers have instinctively put off decisions and held back on buying expensive many leisure, lifestyle items. On the other hand, cheap costume jewelry enterprises with entrepreneurs and new designers are always coming forward. These are decent opportunities for financing.

ELECTRONICS:  Competitive warfare has broken out in this sector where small business owners are looking for commercial finance in their manufacturing and importing of knock offs of big-name brands. The retail community embraces these propositions. However, there are all sorts of strings connected which often turn the business owner and their deal into a high-risk scenario. This includes retailer demands like attached markdowns, and huge returns. These transactions can disintegrate into one huge consignment sale. It becomes very easy for the client—and his financing source to lose out here. Also be careful when you are financing black market (complete knocked offs without regard to patents or copyrights) electronics or gray market (buying it legally from an unauthorized distributor) electronics. Brands like Microsoft, Apple, or HP carry a lot of weight with retailers. It appears unlikely many in commercial finance will get the opportunity to finance those deals. Perhaps, some of us may be financing “the next Apple” or “the future Microsoft”!

COMPUTERS:  Ditto what I stated above on chances to finance cheaper versions of the brand. One strong growth area during 2012 which appears to be continuing into 2013 are opportunities for financing computer upgrade products, enhancements, and software packages with strong licensing. There seems to be good entrepreneurship, business owners partnering. All of this has strong potential for us.

FURNITURE:  I’m not seeing a lot of activity here. Big chains appear to be limiting their buys, and what action is around is being handled by specialty shops (ie-bedding, lighting, carpeting). Be careful on the receivables from a small store operation or an independent. What is their size and credit status? There appears to be some promise among entrepreneurs who are manufacturing customized, high quality furniture and selling to high-end concerns. This budding class of business owners needs financing.

TRUCKING:   RMP has been involved in factoring invoices here from “Day One”. For 2013, I sense some increased volume on truckers moving goods for 2013, with account debtors paying slower and even demanding more advantageous terms. So the factor becomes more relevant. However, more commercial finance firms have recently discovered this space, and the competition among us for deals has been driving down margins on yields -- to the benefit of the trucker.

RE-DISCOUNT PROGRAMS:  There are a number of new, small factors who have made their debut in commercial finance. They are actually well-capitalized entrepreneurs who are moving their investments from banks and other equities, trying to take advantage of more attractive yields in factoring. They need backroom support, and additional leverage financing as they learn the business. High net-worth people have a lot of interest in this approach, and how factors can service them.

CONSTRUCTION:  There are plenty of deals still flowing from public works construction, the contractors and subs engaged in this work, especially from small vendors and family-owned businesses that need financing. Many of these enterprises do not have the financial capacity or cash flow if they are awarded government contracts. So this should be an excellent fit for many factors. The key to make this successful is a strong funds control program. It appears that with President Obama being re-elected, public works opportunities will be abundant for the next several years.

My instincts based on more than forty years in business, many logged in commercial finance, is that 2013 will continue to offer some economic improvements because we are at the end of the 2008 down cycle. A significant negative in our 2012 economy has been uncertainty and instability ravaged by partisanship and politics. Whether you were a Republican or a Democrat, the direction of our nation over the next several years has been somewhat settled. I am not expecting a whole lot but there should be some modest upswing for commercial finance.

James DiCamillo
Executive Vice President
RMP Capital Corporation

RMP Capital Corp is a nationwide provider of factoring solutions for small to medium sized businesses. We also provide factoring services to contractors working on public works projects, small trucking companies and small growing factoring companies in need of rediscount lines of credit.

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