Jeff Brown-July 18, 2019 Practically all commercial banking financial institutions (FI) engage in some form of asset-based lending.  These loans, which take the form of revolving lines of credit or term loans, are secured by the borrower’s assets (as the name implies). How much credit a borrower can access is primarily determined by the quality and value of the collateral, which can range from accounts receivables and inventory to equipment and real estate. 

The purpose of these loans range from working capital augmentation, acquisition, and recapitalization to financing growth through marketing spends, and much more. Repayment is typically looked at as cash flow from operations through collection of accounts receivable and conversion of inventory to cash through increased sales.

Often these loans and/or lines of credit are governed by some type of formula whereby the most collectable accounts receivable and marketable inventory is used to calculate the amount a FI is willing to advance to the borrower.  For instance, the formula might be similar to:

“The FI will advance 80% of accounts receivable less than 60 days old and 20% of inventory less than 90 days old not to exceed $100,000.”

The benefits of these types of loan/lines of credit for both FI and customer are:

·       Increase your borrowing power, especially for companies with less predictable earnings and cash flow

·       Enhance discipline and efficiency around accounts receivables and production for more borrowing capacity

·       Reduce financial covenants, including restrictions around the level of debt to enterprise value or cash flow, and net worth-focused covenants

·       Potentially gain more time to address financial difficulties due to built-in collateral protection

As you consider the collateralization of these loans and lines of credit, merchant credit card deposits that are deposited in your bank each day are often overlooked.  More and more merchants are accepting business-to-business payments via credit card.  Today, the conversion of their accounts receivable is often in the form of a credit card payment and not a check.  These payments are done for convenience, your client’s customers often demand the reward perks that go with B2B charges, or your clients have realized that they can often get paid faster with less bad debt expense by accepting credit cards for payment.  Surcharges have also made it more attractive for B2B merchants to accept credit cards more than ever before.

Due to the highly competitive nature of the payments ecosystem, most merchant credit card processing relationships reside with third parties in today’s marketplace.  As a result, banks have often lost the merchant relationship to payment specialists in the industry.  Those third parties often control a very large portion of your bank’s asset based-lending collateral.  The merchant credit card deposits are often being deposited at an FI other than yours, thus they are out of your immediate control or visibility.

As your FI is establishing its lending policies it should considering making it a condition of approval for all loans secured by accounts receivables and inventory that your bank process the credit card transactions for your customers.  A policy of matching or reducing your client’s payment processing costs can be established so that your client knows they are receiving excellent service and value, your FI benefits by residual income, and your asset-based lending is better secured by having all of your customer’s deposits residing inside your FI.  Why not have complete visibility of your customer’s cash flow via checks deposited, incoming wires, ACH and now credit card deposits? You’ll be able to see increased risks based on the health of the business, as well as opportunities to do more for your clients as they strengthen.

Contact our team at UMS Banking to learn how to implement this plan, reduce your lending risks, and better serve your customers today.

Jim Harris-July 11, 2019 My long-time friend and our CEO, Kevin Jones, talks often about the importance of integration when it comes to helping small and mid-sized businesses compete and win. What he’s referring to is a natural fit that occurs when great financial technology from different corners of the market—payments, SaaS, and analytics—comes together to bring a one-stop shop for SMB management, both from financial and operational perspectives.

While Kevin’s vision is unmatched in the industry in this regard, I focus my role on something that’s even more foundational, and I’m pleased to tell you that what’s behind every great integration is a great partnership, whether it’s a collection of brands like UMS Banking, Elmhurst, Tandem, and RazorSync, or you’re talking about partnerships of the external, strategic variety.

For me, there are many great partnership opportunities for a company like Celero and its subsidiaries like UMS. We’ve seen a wonderful partnership develop internally as we integrate our teams on a shared services platform that will offer incredible value to SMBs. We also see this dynamic in our work at local community banks through UMS, as well as larger community banks and regional banks through Elmhurst.

At UMS and Elmhurst, we work through commercial bankers and the many teammates who support their work, from branch managers to tellers. Partnerships work and only work when both sides can win. When a community bank brings in a payment processing partner like UMS or Elmhurst, both teams can do what they do best, share the revenue accordingly, and give their mutual customer, the SMB, the tools they need to compete. Commercial bankers are at their best when they can focus on building client relationships and leave their partners to simplify otherwise complex aspects of their clients’ businesses.

The same can be said for software providers. There are many SaaS providers out there that are focused on specific industry verticals. A great example is our own RazorSync, but there are many others out there, too. Again, the developer can stick to what they do best—writing great software, while we can come in with a frictionless integration and onboarding experience for the SMB that’s as easy as clicking on the browser icon on your new computer’s desktop. While I suppose it’s possible that you can build a great app without payments integration, having the revenue stream connected to your financial and operational management means a lot more data and a lot better decision-making along your business-building journey.  

Another great value proposition is that of associations. Again, a partnership must deliver value on both ends. When we can engage with associations, we have the opportunity to grow exponentially the number of merchants we serve. In exchange, the association—a member-driven organization that needs to think of new ways each year to deliver greater value to its member companies—has a program that offers competitive rates and terms that help its members grow.

One of the things I love most about our industry is that it’s full of people who are collaborative by nature. That doesn’t mean that we’re not competitive, but rather that we’re able to focus not only on what we need in business, but what our partners, be they financial institutions, software developers, associations, or others, need as well.  What we are building here at Celero, while it may not be unique, it’s nonetheless special. It’s special because of the integrity we have in aligning our success to that of our partners. They find out very quickly that if we are going to invest ourselves, our financial resources, and our capabilities into a partnership, it’s because we’re betting on them to win.

When you base your partnerships on being fair to your partners and positioning them to win big, you can expect great results for your own team as a result, too.