Factors saw an increase in business in ’09
thanks to the difficulties of other banking
It is not yet clear how much business from
new clients has offset falling volumes from
Some of the larger factors have been able to
take market share from competitors whose
parent companies have been struggling.
Cautious optimism is felt by many for 2010.
The apparel and textile industries remain
the bulk of business for factors and, to a
lesser extent, industries such as furniture
Obtaining financing has been an obstacle
for many smaller factors.
“This was our best year in history,” said
Barry Essig, vice chairman of Crestmark
Bank, an FDIC-insured bank based in
Troy, MI that specializes in factoring
and asset-based lending (ABL). “
During the course of 2009, the increase in
business was due to the fact that other
banking institutions were caught up in
difficulties, and so they were unwilling
or unable to lend to small businesses,”
said Essig, who operates out of West
Palm Beach, FL. The increase came not
only from referrals from banks and other
parties, but also from clients who came
directly to the factor after being rejected
by their bank.
Although its clients’ same-to-same sales
from one year to the next were down
more than 15%, Crestmark’s new business
was strong enough that the company
experienced growth and profitability over
the prior year, Essig said.
For the entire factoring industry, however, it is not clear yet how much business
from new clients has offset falling volumes
from existing clients. In 2008, annual
factoring volume leveled off, increasing
just 0.5% from the prior year, to $136 billion, according to the Commercial Finance
Association’s Annual Asset-Based Lending
and Factoring Surveys for that year.
Nevertheless, a number of factors said
they would not be surprised if the total pie
has increased, because so many businesses have been unable to obtain traditional
loans from banks and have been turning
to factors. The CFA’s survey results for 2009
will be released in mid-April.
Some of the larger factors said they
have been able to take market share from
competitors — namely CIT Trade Finance
and GMAC Commercial Finance, whose
parent companies have been struggling.
In November, CIT Group Inc. declared
In December, however, CIT emerged
from bankruptcy by reorganizing and
eliminating $10.5 billion in debt. CIT Trade
Finance’s president, John Daly, said the
factoring business was challenging in 2009
but should improve over the next year.
“Our volume was down in 2009 because
of the economic downturn and because
some clients chose to leave us through
CIT’s trying time,” Daly said.
Most of CIT’s factoring clients have
stayed with the company, and Daly said
that the majority of those that left have
since expressed the possibility of coming
back. He credits this to CIT’s $1 billion commitment in funding last year for the factoring business, as well as the company’s high
service levels. In particular, CIT claims to
have one of the largest databases of customer credit files in order to determine the
creditworthiness of retail and wholesale
customers, Daly said.
“I think that we have an opportunity to
add back significant portions of business
that we had lost, so I’m optimistic that
2010 will be a good year for us,” he said.
GMAC Finance Services is getting out
of the factoring business altogether. In
its February 4 press release announc-
ing its preliminary fourth quarter and
year-end results, the New York company
said it intends to sell its U.S. factoring
business. “This business is undergoing
a strategic review of its assets in view
of an intended sale of these operations
over time," GMAC spokesman Michael
Stoller subsequently confirmed. "As
such, this operation has been classified
a discontinued operation by GMAC in ac-
cordance with U.S. accounting rules.”
BB&T Factors Corp. is one of the com-
petitors that has taken clients from CIT and
GMAC this past year, said Darren Linder,
president and managing director of factor-
ing services for the Atlanta subsidiary of
BB&T Commercial Finance in Winston-