As the tight credit market continues to impact many small and medium-sized businesses with cash-flow problems, the leaders of Lenders Commercial Finance wanted to offer a solution that went beyond a traditional factoring loan. As a result, Ken Wilkens, Steve Tarpley and Cal McGinnis developed Full-Cycle Financing to cover 100% of the cost of getting product from the manufacturer to a buyer’s loading dock.

From Tech Service Providers to Asset-Based Lenders

Although Lenders Commercial Finance was launched in November 2011, its leadership team did not start in the world of asset-based lending. Wilkens and his business partner Tarpley began paving their entrepreneurial road back in the early 1990s when they founded NEWCAL Industries, a provider of business services and technology, in 1991. Over the course of the next 17 years, the business grew to become a top office equipment dealer that was subsequently acquired by Canon in 2008. Under a management contract, the pair stayed for several years, but eventually set their sights elsewhere. “After our Canon dealership was acquired, we certainly weren’t ready to retire,” Wilkens says. “We were relatively young men.”

During their time with Canon, a former colleague of Wilkens, Cal McGinnis, approached Wilkens and Tarpley about the possibility of entering the ABL market. “When we were in business with NEWCAL Industries, we actually did factor receivables for the company that Cal was involved with back then, so we thought it was a great idea at the time, especially after 2008, when there was a tightening in the credit market, to actually be in that business,” Wilkens explains.

Led by Wilkens, Tarpley and McGinnis, this tight-knit team focuses its business mostly in California, but will venture across state lines for the “right” opportunities. “We will go to neighboring states provided that the size of the warrants and the due diligence process that we take makes financial sense,” Wilkens says. “If we like the business model and like the people, we’re willing to pretty much go anywhere in the country. As you know, this business is not geographically confined, so you can pretty much go anywhere to source an opportunity.”

Wilkens says that Lenders Commercial Finance does not offer financing for a specific industry. Rather, its customers consist of a variety of industry types including service providers, furnishing manufacturers and many other products and services. The primary deals in California begin at $15,000, whereas out-of-state financings are at least $125,000, and, he explains, Lenders can handle relationships up to about $1.5 million. The typical financing structures at Lenders include accounts receivable, asset-based lines of credit, purchase order fulfillment, invoice finance and its Full-Cycle Financing program, which launched in late January.

Full-Cycle Financing

The Full-Cycle Financing program allows Lenders to get involved with clients when they first receive purchase orders from their clients. “They have a product that they are going to provide to their clients, but they need the capital to either buy from a wholesaler or have it manufactured. We provide 100% of the cost of purchasing or manufacturing the product for our customers to sell it to their client. Then, once the product is shipped to their client, we convert it from a PO financing to an accounts receivable financing advancing 90% on the invoice that they provide to their client. So they get 90% value of their invoice to utilize,” Wilkens explains.

“Basically, it goes from PO to cash in about 60 to 90 days,” he adds. “And we provide the financing all the way through from PO to cash. It makes it easier for the clients. Our customers have a clearer view of what their margins are going to be, and it makes it easier for them knowing that it can go from PO to invoice to cash. I think that’s the real benefit. It’s the total solution.”

Despite the success that Lenders has seen, Wilkens adds that PO financing is not the most popular option in the traditional factoring market. “I don’t think lenders like to do it quite as much as other forms of lending because they feel like there is some danger there. I think if you have a good solid client base — when I say client base, I mean our customers’ clients — and evidence of strong repayment history, I think you can avoid some of the pitfalls involved in PO financing. I think that’s why it works so well for us.”

Growing From Referral Relationships

Another aspect of the business that works well for Lenders is its referral relationships with brokers and banks. The company works almost exclusively with these sources, as it does not have a dedicated outside sales force. Wilkens says that he and his team look for brokers who have their borrowers’ best interests at heart and are looking for a solid financing source. “We work hand-in-hand with them to find the best terms. We put together an attractive financing package for their client and we’ll work with a sense of urgency because generally everyone needs to get their financing quickly.” Lenders also provides revenue sharing to its broker partners. “So we’re all benefitting from the relationship and financial package,” he says.

Referrals from banks, however, are slightly different. While the company does not engage in revenue sharing with banks, they do still benefit from their relationship with Lenders. Wilkens says, “A bank actually benefits because a lot of times we may be able to introduce our client that is not with the bank as a cash management client, with the opportunity that as they become bankable, they can move right out of our invoice discounting program and into a bank arrangement, say, on a line of credit. It’s kind of a win all around.”

Building Client Relationships

Wilkens notes that each client has specific needs, so each deal presented is handled on a case-by-case basis. “It really depends on where they’re buying their goods or where they’re manufacturing. We have many deals, for example, where products are being manufactured in China. We offer trade credit for clients who may have a lot of their transactions outside the U.S., so our experience in that regard provides them with some security.”

In addition, a simplistic, “one size fits all” and business relationship-based focus has helped Wilkens and his team gain traction in the factoring market. By keeping fees at a minimum, Wilkens says he takes the “guess work” out of financing by basing any charges on the actual advance amount.

“We set our clients up on a convenient daily rate. There are no other fees involved in our business,” he explains. “We want to make it as transparent as possible and easy for them to understand what the true financing costs are going to be.” One example of an added fee, he says, is a wire transfer fee — if the client already has an account with the referral bank, that fee is waived. “Our approach to credit is a little bit different than most. We’re entrepreneurs, and that’s how we’re looking at our relationships,” he says. “Does the deal make sense? Do we have trust in the people who we’re doing business with?”

Wilkens says one way the company builds trust with new or potential clients is taking the time to sit down with them in person. Recently, the company picked up a client in Dallas. Part of the process, he explains, was to go there, meet the people involved in the deal, understand their business model and establish a rapport with the clients. “That’s why we visit every client that we do business with, even if it’s outside of our geographic region. We want to get to know them beyond talking with them on the phone. It makes them comfortable, it makes us comfortable and it seems to work,” he says. “It’s a great approach.”

Megen Donovan is assistant editor of ABF Journal.