and resources to due diligence and
underwriting. Is that your perception of
the way it was this year?
HASKIN: We found it very much the
case as well. Credit approvals from
factors for us to provide purchase order
funding became much harder to obtain
as everybody was much more cautious
of when the next pending doom may
be; the Circuit Cities, Sharper Image and
many others created a lot of worrying
about whether or not they’re going to
be in business next week.
BURNS: It was a very difficult year in
terms of the credit that we looked at.
The other thing we found is that our
referrals that came in oftentimes were
just junk, to begin with. People didn’t
know what to do with the turned-down loans, and so they would say
“Call the factor”.
The other thing that we saw was
many of the trade terms were extended; they were no longer the typical net
30 or maybe net 60 but now 120 days.
The other problem that we saw was
that many of our prospects should
have called sooner. They waited too
long. We found that when I looked at
the cross-aging, they had stuff that
was already 120 days old, and they
were still providing credit. It was just
too late. They needed a collection
agency, but they weren’t willing to
cut off their customers. They were so
scared that they were going to lose
the account, they just continued to
extend credit. And I think that was
one of the biggest challenges that we
had in the factoring industry.
CHIANG: We found that it took us
longer to get the deal approved
because, even though it was referred
to us by other lenders and banks, the
prospects were in denial. Even though
they were speaking with us, they were
still searching and shopping the deals
with other banks. And that’s what
added to the lag time in trying to get
the deal done because the access to
capital was more expensive, and they
still were looking for the bank financing
that they couldn’t get. That, in addition
to not being able to approve a lot of the
credits because of the economy, just
made it harder to get the deal done.
HASKIN: I totally agree. As an
inventory and purchase order lender,
the checklist for approval became
longer than it had been before, more
checks and balances before credit
acceptance was obtained.
COVE: What did you see as the biggest
challenge for commercial lenders in 2009?
BURNS: I thought some of the
biggest challenges we had were really
balancing our time. I mean, we were
looking for new accounts at all times.
We always do that, but this year,
particularly, our base accounts shrunk
so dramatically. They didn’t have sales,
so we were looking for new deals. Our
existing portfolio had problems so,
consequently, the balance was really
trying to work on the problems and still
focus on putting on new business to
keep the operation at least balanced.
That was one of my greatest problems.
HASKIN: We spent quite a bit of time
protecting and improving our existing
portfolios with greater oversight on our
diminishing portfolios because of bad
credit exposures or the slowing down
on sales of our existing client base was
a problem. New business helped keep
things going, but we became much
more selective. What I also saw was
the banks’ lack of willingness to give
up an account until it was already too
late. They didn’t want to write it off, so
they kept it on or they continued to give
the client forbearance agreements. And
we, as non-banking lending institutions,
charge more money than the banks do.
So, why would anybody looking to replace
a banking relationship pay a higher cost
of funds unless they absolutely have to?
And the banks thought that they were
pushing them out the door by raising it
from one over prime to two over prime,
when in fact they weren’t doing anything
more than giving the client more time
to continue shopping with all the other
banks. Finally at the point in time when
Maria, Pat and we could finally look to
put on a piece of business, there wasn’t
much inventory left for us to lend against,
and the receivables had aged to the
point where the bank had cut off the
lines or the availability of capital put
the client into position where we didn’t
want the prospect anymore at that point.
Additional challenges will be accessing
funds at reasonable rates, as the lending
institutions that lend to organizations
like ours, have shrunk to a number you
could probably count on one hand, if that.