Throughout 2014, the commercial finance industry continues its rebound in the wake of the Great Recession. While SMEs are finding more success securing bank financing, the approval numbers pale in comparison to pre-recession numbers. Naturally, this excess capacity has moved into the commercial finance sector, which has seen credit utilization and new credit commitments, according to a survey by the Commercial Finance Association.

Despite this continued shift of excess capacity to the commercial finance sector, competition remains consistently high for funding new transactions. In speaking with many leaders in commercial finance at industry conferences, seminars and trade shows, most share the sentiment that deals continue to consummate due to numerous competitors entering the marketplace. This being said, the same cornerstones of winning a customer remain true from pre-recession times: hard work in prospecting transactions and referral sources, diligent pre-screening and best-in-class servicing. Similarly, the means by which a commercial finance firm sources transactions remain constant, whether through a dynamic web presence, social media activity, attending events or meeting sources of influence.

Keeping abreast of industry trends is almost as important as the sales process since these sectors may influence our decisions and treatment of transactions.

Apparel/Clothing: This appears to be the most steady and consistent, with a number of inquiries and available transactions. A recent trend is the increase in new, foreign entrepreneurs who want to sell in the U.S. However, long-term, there is shrinkage of this industry through acquisition and consolidation. If a fashion designer entrepreneur becomes hot, the bigger concerns are ready to buy them out. For example, a company may start in Australia, then go to Europe and then open in the U.S. Recently I have financed a boot manufacturer, a designer shoe manufacturer and a sportswear manufacturer, all small and relatively young enterprises.

Costume Jewelry: This sector now offers some decent opportunities. There is a lull now in high-end jewelry like rare, precious stones and gold. However, the inexpensive costume sector is brimming with new designers and stylists, emerging entrepreneurs, import/export deals on materials like interesting stones from Asia and more. There are healthy margins and good profitability so everyone in the equation has the chance to make money.

Sporting Goods: Major name branding and big labels drive this zone. So unless you are associated with a magic sports figure or team, or a well-known reputable product manufacturer with their suppliers, vendors and distributors the pickings become slim for quality contracts. What makes mining these deals difficult is how many of the entrepreneurs in this space come with their own capital and funding. More often than not, they do not require commercial finance firms, unless they do not want to lay out their own money. One technique is trying to identify the sports star on the horizon and making contact with that individual’s circle.

Electronics: Unfortunately, this sector has become dangerous and risky with many commercial finance firms shying away. Becoming involved with an inferior quality product is very easy. Because of these substandard issues, retailers demand guaranteed sales with liberal returns (e.g., 90-day return policies), holdbacks and markdowns. Major depreciation is very common with these products. A new and improved device is released within less than a year, and a commercial finance firm, which must liquidate collateral to cash, can wind up with 25 cents on the dollar.

Toys: I’m not enthusiastic about this segment, which is usually dependent on marketplace conditions from Black Friday through the holiday season. Unless you are involved with hot, popular items where there is already a following, it becomes unattractive from a financing perspective. Like electronics, you must be ready to accommodate a lot of returns and guarantees that benefit the retailer. Deals in this space are a crapshoot, following what was a long binge. People seem to be holding on to their durable household equipment longer, and only buying new when it becomes a necessity rather than a luxury or impulse.

Durable Goods: There’s a marked slowdown in consumer consumption. Consumers look for better deals when they purchase, which has placed enormous price pressure among goods and inventory where there used to be healthy margins. Be careful.

Publishing: Internet communication, web technology and computer graphics continue to shrink traditional publishing, which has withered into a weak, anemic patient. Many once powerful organizations have either consolidated operations, allowed for acquisition at reduced equity, or simply shut down or scaled back certain business units. Perhaps because of this distress, there are some small niche deals here and there. Pick your spots.

Construction: There appears to be decent growth in contractor and subs engaged in public works projects, which require financing. More than ever before, banks are restricted by government monitors by the quality of companies to which they are allowed to lend. Therefore, many contractors are turning to factors in frustration and to overcome distraction. Surprisingly, although there has been an estimated $50 billion in government assistance for hazardous clean-up, disaster recovery, rehabilitation and restoration specific to Hurricane Sandy in the Northeast and Mid-Atlantic regions, relatively little of this activity has translated into commercial finance transactions. In large measure, the monies are given directly to the victims, and it is their responsibility to pay for contractors. Hurricane Sandy money payable to a contractor from a government entity or an insurance company has been an irregular proposition for any commercial finance firms to participate.

Wine, Alcohol & Spirits: This industry, which is relatively strong with an increasing number of international import transactions, has never lived up to its potential for commercial finance firms. You have to be very cautious with all of the duties, import restrictions and trade barriers. In addition, many retailers do not want to issue purchase orders until the inventory is already being shipped. Some issues in the past involving delivery and fulfillment were problematic and have affected this industry’s credibility.

Transportation/Freight: Opportunities are plentiful, and this sector has made a comeback. Large factors that previously did not pay much attention to this sector have jumped in because of high volume on deals given the low cost of funds. A commercial finance firm must have the depth and experience quotient to play in this sector. With the emerging interest on this sector, competition for deals has accelerated, which now benefits the trucker.

Janitorial/Maintenance: This has always been a solid opportunity for factors because the invoices and account debtors are generally strong. Now, as real estate and space appear to be enjoying some increased demand, a natural trigger is more janitorial and maintenance contracts. Some of these contracts have become larger and more lucrative for the service providers and their respective finance companies. There is greater awareness of disease, public contagion, germ-free environments, air quality and related concerns, which has translated into contracts that have become more expensive.

Office Supplies: While the sector has abundant activity, a commercial finance firm has to be cautious because vendors, suppliers and distributors can easily get trapped in transactions where there is little to no profit, or even a loss because of severe price pressure and control from the big box retailers who often dictate the terms on purchase orders and invoices.

I have seen a number of export transactions for American goods around the globe. As markets become more competitive, small businesses are beginning to see the benefits of exporting their goods to stay competitive and even out revenue, especially for seasonal business cycles. As with any alternative financing product, the education of the small business to the availability of funding their exports is the biggest hurdle we come across in the sales process. Most exporters are relieved to find that there are solutions available to them when they embark on an export endeavor.

Despite the economic challenges of a lagging recovery, new business startups continue to rise, showing the entrepreneurial resolve of the American economy has been somewhat resilient in the recovery. We see many of these on a weekly basis, who have often been through the gauntlet of turndowns for bank loans and SBA financing, and are discouraged about the availability of funding for their new business. Still, I find sales process fundamentals are key to winning the transaction and convincing the new business owner of the value proposition for their company.

Donald Barrick is president of RMP Capital Corp., a 10-year-old national niche factor with emphasis in international factoring, generalist factoring, public works construction, funding for small entrepreneurial factors and purchase order financing. RMP Capital Corporation, headquartered in Islandia, NY, has offices in Massachusetts, Florida, Pennsylvania, Texas and Michigan, and handles about $80 million in annual deal flow.