March 2010

New Association Aims to Shine Positive Light on Factoring

In mid-2009 when the economy was still mired in a long, hard recession and just beginning to work its way out, members within the International Factoring Association decided it was time to launch another branch to stave off onerous regulation of their non-regulated companies. The result became the American Factoring Association.

The American Factoring Association (AFA) came to be, explains Allen Frederic, president of the association and president and CEO of Gulf Coast Business Credit, when several IFA members “expressed concern that we did not have either an education arm or an advocacy arm in the IFA.” With a nonprofit 501 (c) 6 designation, the AFA’s purpose is to be that educational and advocacy arm of the IFA, “with the hope that all the members of the IFA will become members of the American Factoring Association,” he says.

And with the current economic issues and the mood regarding financial institutions in Washington, these members decided now was the time to be heard. Other associations, including the American Banking Association, the Commercial Finance Association (CFA) and the Mortgage Banking Association focus on these efforts, and Frederic says it was time to have an education and advocacy arm especially for factors.

“Currently the overall mood in Washington is unfriendly to most financial institutions. There have been numerous references to the shadow banking system, which I suppose in its broadest interpretation … would include any financing institutions that are non-bank institutions or non-regulated institutions.” Frederic adds, that many factors belong to both regulated and non-regulated institutions, and for some that could mean harsh regulation and a shortage of cash flow to serve customers.

He adds, “We want to have a positive effort at education and advocacy, and to let folks on both committees that affect the financial industry — both the Senate and House Committees, their staffs, the administration and various regulatory committees — understand how helpful factors are to small businesses in this country. How much money we lend to small businesses, how many jobs we support, how many companies we keep from closing their doors and going out of business. This is the message we want them to hear.”

The American Factoring Association was founded first, Frederic says, with a monetary contribution from the IFA’s Bert Goldberg, who went to the IFA’s advisory board with an idea to form a new effort. The association is set up to receive donations of money and/or time from members. Monetary contributions are used to establish a budget so that the AFA can hire an executive director and a representative from a Washington firm that can assist it in its efforts.

In building the AFA’s board, members of the IFA discussed a variety of names and those IFA members were then asked to serve on the AFA board. Those members include: Frederic, Goldberg, the executive director; Pat Burns of Primary Funding Corp. as vice president; Brian Van Nevel of Spectrum Commercial Services Corp. as chief financial officer; and Debra Wilson of Vertex Financial Corp as secretary. Other board members include Bob Zadek, Esq. of Buchalter Nemer and new member Ivan Baker of United Capital Funding Corp.

As for the benefits of membership, Frederic notes that the association is for all factors, both big and small, but especially those that don’t have a voice to raise their issues and concerns. “If you are a factor, you may or may not have anyone representing your interest in terms of education and advocacy. If you are a member of the CFA, they have an effort, which has been ongoing for some time, and they do a very good job. But, many members of the IFA are small factors that are not members of the CFA. There’s no one that represents their interests.

“In Washington D.C., in both the Senate and the House, our elected officials come from a wide range of disciplines. We speak the factoring lingo, we speak the factoring language, and we take it for granted that everyone understands factoring. A number of people [outside] the financial industry don’t know what factors do… And so the benefit of membership is to get representation in the areas of education and advocacy.”

The AFA is making an effort to work with advocacy groups in other associations including the CFA. Frederic adopts an attitude of “the more, the merrier.” He explains, “We have reached out to a number of organizations and are still reaching out. Since we are a very new organization, that reaching out effort has really just started. We hope that we are successful in working with other organizations that have experience doing this and, at the same time, bringing our very specific message to those that would be in a position to look at those matters. We will not operate in a vacuum, we will reach out to other groups and advocacy efforts, while we work on our own.”

As Frederic has noted, the mood is Washington is unfriendly toward financial institutions and that’s why this is an even more important time for the association to act — to set the record straight and show the decision makers what the industry really does.

“In March 2009, Treasury Secretary Geithner called upon lawmakers to enact what he called the most comprehensive changes to financial market regulations since the New Deal. He outlines changes in four broad areas and one of these broad areas was closing gaps in regulatory oversight. Barney Frank, the chairman of the House financial services committee, in a Wall Street Journal article dated March 27, made the comment that the days of light touch regulation are over.”

Although a bill has been proposed in the House and the Senate is likely to make its own version of such a bill that affects the financial industry, no details have been issued to either the industry or the public. “Details of the plan are left blank,” Frederic says. “It’s the purpose of the AFA to point out educationally really what the factoring industry does. We need to point out how many thousands of companies we advance money to, what’s the total size of the factoring market, how many employees of these companies have jobs because of factors.”

He continues that most factors have to get their money from some place to then extend it to these small businesses. In many cases, these lenders include commercial banks, hedge funds, investors and others, and these lenders have to survive for factors and their customers to stay in business. “We don’t want to see the flow of funds to factors, which in turn puts that money where it does good — we don’t want to see that flow limited,” Frederic explains.

With all the bad press the financial industry has gotten lately — whether justified for some sectors or not — Frederic maintains that an offensive approach is the best way to get the message across. “Listening to all the negative rhetoric coming out of Washington, we think it makes sense to take the offensive to present a positive message as to who we are and what we do — to simply get the message out there.”

A banker before he was a factor, Frederic knows the positives of some regulations and controls within the industry. “Banks lend money. Factors purchase receivables. We have many more controls than banks do on banks loans. If you look at industry numbers on losses … the industry as a whole, by and large, has done a good job at managing the risk, at the same time providing money to businesses that otherwise would have no place to go to get funds.”

And that’s the message Frederic wants to get out about the association. “We, as factors, think of ourselves as a place where growing companies or turnaround companies or even startup companies can come to us for help. In a sense, we are a rehabilitation facility until these companies can re-enter the traditional banking stream… That’s how we see our role, that’s how we want to, through education and advocacy, present our role and the positive things we do… I can point to dozens of companies that had it not been for factors, those companies would have never gotten started, they would have never grown, they would have never survived.”

The factoring industry is one that Frederic cares about and it is evident when he speaks of it and his concerns with any impending legislation that could affect the industry negatively. After earning a Master’s degree from Louisiana State University, the U.S. Army Captain started his career in the financial industry with First National Bank of Commerce in New Orleans. Throughout his more than 20 years in the banking industry he has held a variety of positions including division head in business development, chief credit officer and president/CEO of a local community bank. He also managed loan production offices for major U.S. regional banks and foreign banks.

Fifteen years ago, Frederic entered the factoring business working for KBK Financial, and five years later started Gulf Coast Business Credit, a division of Gulf Coast Bank & Trust. He is also a director and member of the executive committee of the CFA, and an instructor and chairman of its entrepreneurial and factoring committee. He is a past advisory director and instructor for the IFA, and served as an instructor and course coordinator for the Louisiana State University School of Banking.

Frederic will tell you that factors are very proud of the work they do. He has built relationships with many association members and notes that talk around the table is not about how much money anyone makes — it’s all about the success stories. “We all love to tell those kinds of stories because that’s what we do, and that’s the message we want to get across… We just really want to educate lawmakers … about what factors do and the positive effect we have on the economy.”

He continues, “There really is, I think, an ignorance on Capitol Hill of the benefits of factoring, and so we simply don’t want to be swept into something that may affect our industry in a negative way. It’s not about us; it’s about the people that we keep in business. It’s about the jobs we save.”

Amanda L. Gutshall is associate editor of ABF Journal.