Invoice Discounting

Widgets Come In All Shapes And Sizes, And So Does Financing!

Date PublishedMarch 19, 2015
CompanyThe Interface Financial Group
Article AuthorDaryl Turko
Article TypePULSE Interactive Newsletter Mar. 2015
CategoryPULSE Interactive
Tags, , , ,
PULSE Interactive

Widgets Come In All Shapes And Sizes, And So Does Financing!

Interface Financial Group PULSE Interactive Newsletter

Chapter 1: The Big Boys Financing Tale

big-widget-coOnce upon a time, there were three companies. A really big, giant corporation that made giant widgets and exported them all over the world.

They had been making their giant widgets for nearly one hundred years and had perfected the art of forming an almost perfect steel widget. They had offices in several very large North American commercial centers and employed over 2,500 people. The founder of the company had handed it down to his son, who in turn had passed it to his son. The third generation was now firmly at the helm.

One day the CEO decided it would be nice if they opened a new manufacturing plant in California and so he had his experts draw up a business plan and the accountants did the projections and crunched all of the relevant numbers. He collected all of this information, together with some tasteful drawings of how the new factory would look and he bound it all together in a really nice blue binder with the company logo embossed in gold leaf on the cover.

Then the CEO called his bank manager and invited him to his Club for lunch where he presented the business plan and a loan request for $400 million. After a sumptuous lunch and the requisite amount of brandy the bank manager said he would take the request to the Board for approval, but could see no problem and why didn’t they proceed as if the loan was approved.

The next day after calling an extraordinary meeting of the board, the bank manager called the CEO and confirmed that a $400 million line of credit had been established at prime and also an additional standby line of $50 million in case there were cost overruns on the project.

Chapter 2: An Alternative Financing Tale

While all this was going on there was another company that had been in business 10 years, a not so big company. They also made widgets but they had decided to seek out the high tech plastic widget market as their niche.

FinancialSales were expanding quite rapidly and their group of ‘techies’ were constantly coming up with new widget innovations that were quickly absorbed by a growing widget marketplace. In fact, business was so good that the CEO was seriously contemplating building a new manufacturing facility in Nevada.

As sales increased so did the CEO’s confidence level, to the point where he took his business plan for expansion to his bank manager for review. The bank manager was not enthusiastic and used phrases like, over-trading, debt to equity ratios, expanding too rapidly and under-capitalized, however he said he would send it the credit committee for review; however, the CEO was told not to expect too much from the bank. Their existing modest facility should, in the opinion of the bank manager, be adequate for their needs.

The bank manager was true to his word, he sent the application to the credit committee and some 3 weeks later they declined on the basis that the company was expanding too fast based on its capital base. The bank manager explained that it was nothing personal, just that the bank had to think about their shareholders and depositors and so on and so on. The CEO recalls thinking that it sounded like a well-rehearsed speech.

The bank manager did however offer one small piece of constructive advice, why don’t you call the Widget Factoring Company, maybe they can help.

Sure enough, within a matter of days, Widget Factors had completed the paperwork and there was enough new working capital available to launch the next round of expansion. They had also been instrumental in helping locate long-term working capital to take care of the capital cost of the new facility.

Chapter 3: The Financing Fairy

And then there was a very small company, Wooden Widget Company, so small in fact that they had only been in business for 11 months. The owner of the small company had long believed that there was a great un-tapped market for wooden widgets and so he launched himself and his small company into that under supplied market with great success. His slogan was “Every Widget Made by Hand”, it wasn’t altogether true but it certainly proved a winning line to build his order book.

Interface-Financial-GroupSales however were still only about $500K per annum but the order book was rapidly growing with most models now on back order as materials could not be obtained from suppliers without some ‘cash movement’. The owner of the small company had exhausted his own personal funds and so he called his friendly neighborhood bank for help. He had seen their ads on T.V. advising that they were “The Small Business Bank” and he was a small business, so problem solved.

Not so fast. They did not even invite him to a meeting or suggest that he submit a loan request. They were able to assess his situation on the ‘phone. Seems that their slogan was also not quite ‘true’.

Through his own diligent searching, the owner came across ‘Factors’ in the Yellow Pages. The factors were somewhat more sympathetic and certainly understood his dilemma but in the final analysis also had to decline.

That was all 12 months ago. Today the Wooden Widget Company is alive and doing extremely well, sales are up, there is a good long order book, no models on back order, and the bottom line is looking good, how did this happen? The Wooden Widget Company found an Invoice Discounter by the name of The Interface Financial Group. The Wooden Widget Company was very pleased to find out that Interface Financial stands by its mission statement — provide short term working capital for small business.

It’s not a fairy tale! Widgets come in all shapes and sizes and so does financing!

Daryl Turko

Daryl Turko is owner of The Interface Financial Group, Calgary, AB, a provider of invoice discounting services.