About a Freelance Career as a Factoring Broker

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Georgina Beasley
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About a Freelance Career as a Factoring Broker Consulting in Commercial Finance is a unique profession in which independent agents or brokers serve the general small business community by assisting

1 About a Freelance Career as a Factoring Broker Consulting in Commercial Finance is a unique profession in which independent agents or brokers serve the general small business community by assisting business owners / entrepreneurs in their search for business finance solutions when traditional bank lending is not available. Although well practiced in Europe, few individuals have discovered this unique vocation in the United States, where competition even in today s challenging economy remains relatively minimal. Many Commercial Finance Consultants (CFCs) are commonly referred to as factoring brokers, due to their almost singular focus on commercial factoring as a ready financing tool. Such brokers tend to come from all walks of life. Many part-time practitioners are often involved in such business service related professions as accounting, insurance, business brokerage, the real estate and mortgage industry, etc. Others, the full time CFC career-seekers, tend to be unique entrepreneurial individuals or mobile creatives that have discovered this very exceptional profession and subsequently invested the time and energy to gain the necessary specialized business finance expertise required to provide the service and excel in the industry. Rapidly Growing Need It is no secret that banks are not lending and small business owners in the United States continue to have extreme difficulty in accessing working capital. This problem is exacerbated by the fact that the most common historical sources of startup working capital can no longer be counted upon to provide the resource. These include: Equity in a Home: Though real estate values have partially recovered in some markets, large amounts of equity in family residences seldom exists. And even when a small amount of equity does exist, very few banks will lend against it. Credit Cards: For most, the ability to access credit cards is very limited. Usually, the start of a new business means the entrepreneur has lost his or her job making the application for additional credit difficult at best. 1

Friends and Family: Another traditional source for startup working capital which is clearly not as accessible as in the past, many making up this group friends and live in fear of losing their own

2 Friends and Family: Another traditional source for startup working capital which is clearly not as accessible as in the past, many making up this group friends and live in fear of losing their own job or are under severe financial stress. Historically, many small business entrepreneurs have utilized community banks for micro-business loans as their working capital needs grew along with their companies. Those days are no more. Currently, of the nation s roughly 8,000 banks and thrifts, nearly 900 are still operating under significant distress and with severe capital limitations. It is estimated that a large number of such Zombie Banks could not survive any forthcoming economic downturn. And the Real Downturn Continues Clearly, there is little good economic news coming from Washington. While the current administration arguably entered the economy at a terrible time, it has also proven to be completely incapable of turning the economy around and launching it into true recovery. The Federal Reserve has literally exhausted its economic priming capabilities including endless rounds of quantitative easing, record low mortgage interest rates, expanding the purchase of asset classes and making low interest loans to banks. Nothing has worked. Entitlement spending continues to grow, deficits persist and balloon, and it seems little can be done to stop it. While official jobs data shows just over 5% unemployment, a truer picture can be had by taking into account those that have simply stopped looking which would reflect a dramatically higher number. Add in those that have taken part-time employment just to survive and you will find the real number still well over 10%. And though the most recent monthly jobs reports commonly show 200,000+ jobs being created, two-thirds of that amount reflect increases in very poor paying, minimal wage jobs including those in the food and beverage industry. For those in the know, the real jobs picture can be evidenced in a single statistic. Americans no longer in the labor force is now at an all time high with over 94 million individuals no longer counted in unemployment calculations. With a labor force participation rate of just over 62%, this now ties the record set back in

The Growing Trend Towards Entrepreneurism Because of the continued disintegration in the jobs market, more and more small businesses are being started out of necessity.

3 The Growing Trend Towards Entrepreneurism Because of the continued disintegration in the jobs market, more and more small businesses are being started out of necessity. Entrepreneurism is beginning to boom. Many of today s budding entrepreneurs are opening new businesses in the service sector due to the relatively low cost of entry. Janitorial services, lawn care and maintenance companies, staffing companies, guard services, general exterior building maintenance companies, etc. all are attracting new entrepreneurs that manage to raise the capital to open the doors. What few such start ups foresee, however, is the need for expansion and operating capital once the venture gets off the ground. Without access to such capital, many of these infant ventures are doomed to failure. Since banks are not lending, the question arises, Where can such funds be accessed? Alternative Commercial Finance For most new entrepreneurial business start ups in today s economy, the need for some knowledge of financing options is essential. Many new business owners know little about the alternative commercial finance industry and the many financing options available to them. What s more, most banks do not offer such alternatives as a matter of their day-to-day business and their loan officers lack the knowledge for customer referral to the proper specialized lender. Alternative Commercial Finance (known as ACF) does not provide the seed funds or grubstake money necessary to initially start a business venture. Instead, it focuses heavily on the working capital needs of a business after it is up and operating and has established its first customers and sales. It will, for example, finance customer sales when 30, 45, or 60 day terms of payment have been offered, provide capital for inventory and inventory replacement, insure export and cross-border sales, finance payroll, and provide funding for equipment. It is almost always asset-based and often does not require the personal guarantee of the borrower. 3

4 One of the strongest characteristics of ACF is its broad and ready availability to small business. For owners and entrepreneurs, gaining knowledge in this critical area of commercial finance can often mean the difference between the success or failure of their business. Primary ACF Focus Areas While the total operating areas and spectrum of services offered to small business through Alternative Commercial Finance are too numerous to be adequately covered in this short article, the most popular areas and most broadly accessed are as follows: Factoring: The day-to-day purchase of the accounts receivable of a business, factoring is arguably the most powerful source of small business finance available to new and early stage business owners. Its volume of purchases is well over $100 billion each year nationwide and is accessible to even the earliest start ups. Asset-Based Lending: Loans (typically in the form of a revolving line of credit) to a business using accounts receivable, inventory, and the equipment of a business as the collateral. Purchase Order Finance: Funds advanced for the actual manufacture of goods where a firm order for those goods exists from a strong, creditworthy customer. When used in import-export trade, a purchase order finance company will post letters of credit for the benefit of an offshore manufacturer and oversee the delivery and shipment of the goods to the end customer. Merchant Cash / ACH Advance: An advance of working capital based on the anticipated receipt of future credit card or other sales. Merchant cash is considered expensive but provides liquidity when other sources of much needed capital are nonexistent. Typically, the merchant cash advance company may also be a credit card processing company. 4

5 There are many other forms of alternative commercial finance with some pertaining to import export trade. Companies with a focus on payroll finance are a rapidly growing area currently and while most loan programs of the U. S. Small Business Administration (SBA) cater to business owners with at least a three year operating history and reasonable credit, the unique SBA Microloan Program with loans granted up to $50,000 is an especially attractive source of financing for startups. Commercial Finance Consulting: The Business of Becoming an Industry Broker Though some small business owners will be referred to a proper source of alternative commercial finance by their bank s loan officer or perhaps a CPA, others will not be that fortunate. That is, unless they luckily stumble upon an enterprising independent loan broker or, as they are better termed, a Commercial Finance Consultant (CFC). These modern day small business finance advisors come armed with an in-depth knowledge of not only alternative commercial finance solutions but also an exhaustive database of actual financing companies that provide the resource. CFCs are unique in every aspect. Much like any consultant, they develop a significant expertise in a variety of industry areas. They are professional problem solvers and understand the cash constraints of small business as well as the limitations of the banking system when it comes to granting small business loans. Operating as a Factoring Broker, for example, is a well known and practiced profession in Europe but such consultants in the U.S. are relatively unknown. True full time industry professionals are, in fact, exceptionally rare. Though a Yahoo HotJobs article recently uncovered this profession, giving it a Top 10 rating on its Hot Professions List, few article readers would be able to understand exactly what the profession involves, nor what is required to enter it successfully. Consulting To be certain, comprehensive industry training is the Catch22 of launching a career. No college education will prepare you for this vocation. The best industry training is that found on the 5

6 job while working for a factor or similar specialty lender. To get a job with such a lender, however, you likely will need experience. The Catch 22. Making a complete career change into the industry can also be daunting simply from the fact that it will likely take several months before income begins to appear. That is, if you do everything right. Few individuals are financially prepared to start full time, tending to slowly learn the business and make a slow career transformation while they continue to earn a living from their current profession. Earning Industry Commissions and Fees Consultant compensation in the form of commissions and fees paid for new client referrals is, by any measure, outstanding in the alternative commercial finance industry. Asset-based lenders, equipment lessors, and many others pay points at the closing of the loan, much like a real estate transaction. Typically, such transactions tend to be large with an average asset-based loan being in the millions of dollars. Five figure commission checks for such loans are not uncommon. Factors and purchase order finance companies provide an even more unique and lucrative compensation arrangement whereby the referring consultant, called the Broker of Record, is paid a percentage of the fees earned each month by the factor or PO finance company. This allows brokers to build books of active commission generating business and to develop a growing residual monthly income as they periodically add new clients to their practice. The Jewel of the Industry Factoring is affec onately known as the Jewel of the industry due to its unique method of broker compensa on and Life of Account payment structure which allows consultants to build books of business and monthly income! 6

7 And, that s not all. Compensation for referred business is very high on a comparative basis to many other areas of consulting. For example, while a traditional stockbroker, a well known area of financial consulting, will require $50 to $75 million under management to earn a six-figure income, a successful factoring broker or commercial finance consultant that deals heavily in factoring, will need only 5% of that amount or roughly $2 to $3 million to earn $100,000+ per year. In addition to being compensated by lenders, many consultants will charge a small fee to their clients for the consultation work. Hourly rates can typically run $25 to $40 per hour but a flat rate fee of $100 to $500 is not unusual. What You Will Need to Get Started Another attractive characteristic of consulting in factoring and commercial finance is the minimal amount of capital, equipment, and office materials you will require to actually launch your consulting business. What is required will vary markedly based on your current vocational status. Are you entering on a career full time basis or are you simply attempting to augment your current profession with some additional commission income? Either way, you will likely have most of what you will need to enter the industry already which will include: 7

8 a computer (desktop or laptop) a printer, fax, scanner and copier (4-in-1 machine) a phone system (two line preferable) and business cell phone a contact relationship management (CRM) system filing space The vast majority of those that start out, do so from the convenience of a home office. In fact, some never leave it. Most true professionals, however, will eventually make the transition to an office located within a bank building or to an executive suite operation where they can have access to a receptionist, meeting rooms, and other BIG OFFICE benefits. Business Development: Bringing In New Business How you market your consultancy and how, when, and where you prospect for new leads and clients will, again, be very dependent on whether you enter the industry on a professional full time basis or are as a purely part-time consultant. For part-time consultants, the business tends to be simply one of networking and being in the right place, at the right time, armed with the knowledge to assist a cash-strapped business owner. Part-time consultants will focus heavily on word-ofmouth marketing and building relationships with others than can send business their 8

9 way. They will have a website, publish a monthly newsletter, and spend a significant amount of time using social media such as Facebook, LinkedIn, and Twitter. Career oriented full time consultants typically attack the industry more aggressively. Yes, they will use all of the same marketing weapons of a part-timer but will also depend heavily on direct mail / cold calling, holding small business seminars / workshops, and will join multiple organizations such as the local Chamber of Commerce and fraternal organizations (Rotary, Kiwanis, Lion s, etc.). Professional consultants network heavily with bank lending officers, accounting professionals, commercial insurance agents, and others that provide services to business owners. Knowledge and a Professional Look are the Keys to Success Regardless of whether you are seeking a completely new vocation or are simply looking to make some part time additional cash to supplement your existing job, a successful Factoring Broker / CFC career entry path will require several things: Knowledge: The most important component to any consultancy is the working knowledge and expertise of the consultant. In other words, you will not be able to earn credibility (and fees), if you don t know your stuff. Your first task is, therefore, to acquire an extensive knowledge of the various product areas and to also assemble a database of product providers. Communications Skills: As a consultant, you will live or die by your ability to communicate with prospects for your services. You will need to carefully assess your current communication skills and improve the areas where you are weak. The Look : You will need to look and act the part of a successful industry consultant from day one. Financial consulting is a suit and tie business. You must act and look at least as good as your local banker or, preferably, even better. You will not only be judged on your expertise and financing skills but also on you re ability to impress prospective clients with your capabilities. 9

10 Additional Resources: The IACFB Though a true career as a consultant in factoring and alternative commercial finance may not be for everyone, almost anyone can benefit from gaining a certain level of industry knowledge. In fact, simply being in the right place, at the right time, and armed with the right knowledge can mean anyone can enjoy the income and many benefits associated with a successful entry into this unique vocation. Although the professional requirements needed to enter the industry can present a major challenge to some, educational costs are no longer part of that equation. One of the first hurdles necessary to overcome to begin earning commissions as an industry broker is that of a financial products education. Fortunately, this has gotten a bit easier due to the internet and the enormous amount of educational materials to be found there. And while there are several business opportunity schools offering quality training in this unique career path, the costs of such training, up to $20,000 for just a few workshop days, can be financially prohibitive. For most of today s self starting mobile creatives with internet capabilities, such costly training is also probably unnecessary. For those initially exploring the industry, there is no better way than to become a part-time factoring broker and no more affordable industry training opportunity than that found at the IACFB or International Association of Commercial Finance Brokers ( IACFB s Factoring 101 Business-in-a-Box broker development program comes complete with everything required to enter the industry successfully including a comprehensive broker training guide, supplemental marketing materials (brochure / flyer templates), and a professionally designed factoring broker website all for under $100 plus monthly subscription ($14.95 which includes website hosting). Another resource for those initially assessing an industry career can be had simply by visiting the websites of factors and lenders. As you do so, you will notice that almost all will have a tab or link to a Brokers or referral page. Spending time on these sites, investigating a specific lender s financing capabilities and preferences, will provide you with a greater appreciation as to the overall size of the industry and its many specialty areas of focus and opportunity. Incredibly, this is a vocation, industry, and career opportunity you probably did not know existed until recently. Finally, for those with a bent towards a full time career as an Independent Certified Commercial Finance Consultant, the comprehensive Commercial Finance Consultant training package offered at Campus IACFB is by far the most affordable way for true professionals to expand their career. This program, priced at under $200.00, furthers the core education found in IACFB s popular Factoring 101 program and provides comprehensive training in the many other advanced areas of alternative commercial finance. 10

About a Freelance Career as a Factoring Broker

About a Freelance Career as a Factoring Broker Consulting in Commercial Finance is a unique profession in which independent agents or brokers serve the general small business community by assisting business